Fed official predicts rebound by year's end
By Frank Cho
Advertiser Staff Writer
The U.S. economy will probably begin to rebound later this year as lower interest rates and new tax cuts help revive consumer spending, said Robert Parry, president of the Federal Reserve Bank of San Francisco.
Richard Ambo • The Honolulu Advertiser
"I'd say the U.S. economy still has a lot going for it, and that we're likely to see an acceleration in growth by the end of the year," Parry told a gathering of Hawai'i business leaders yesterday.
The national economy "still has a lot going for it," Robert Parry, head of the Federal Reserve Bank of San Francisco, told Hawai'i business leaders yesterday. Diversification, he said, makes HawaiÎiâs economy more resilient.
Five cutbacks in the Fed's overnight bank lending rate since January, each amounting to half a percentage point, as well as $1.35 trillion in tax cuts should add some strength by the end of the year for most areas, Parry said.
But when it came to Hawai'i, Parry tempered his outlook. He said continued weakness in Japan and California's energy crisis threaten Hawai'i's economy, which has been particularly hard hit over the last decade.
"Ongoing weakness in Japan will continue to restrain eastbound visitor traffic and spending in the state," Parry said. "Furthermore, the downturn in the stock market and ... slowing in consumer spending may cut further into visitor traffic from the Mainland, which, as you may know, has shown weakness in recent months."
Some of those effects are already being felt in Hawai'i. From January through April, employment growth averaged about half a percent on an annualized basis — far below 1999 and 2000.
"As a result, unemployment has jumped up this year, and consumer spending and state revenue growth as well have slowed," Parry said.
Parry, a nonvoting member of the Fed's policy-setting Open Market Committee, declined to comment about whether the Fed will lower the overnight rate again at its June 26-27 meeting.
Trading in federal funds futures contracts are directly tied to the overnight rate, and Parry said they suggest at least a quarter-point reduction, followed by another quarter-point decline before the end of the year.
Parry said the easing of monetary policy has "fairly long lags," so it may be early next year before it works its way through the economy.
"I'm not expecting that we'll be getting back to what I would consider to be rapid growth by year end, but think we will be moving in the right direction by year end," Parry said.
He said Hawai'i will be better positioned to weather these difficulties because of its slowly expanding diversification. Parry pointed to Hawai'i's fledgling high-tech industry, where the work force grew by 26 percent between 1994 and 2000.
"So, even though Hawai'i is by no means immune from the risks I've mentioned, and may face some rough times ahead, the state's economy will at least be on a stronger footing," Parry said.
