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From Thomson Reuters today . . . Dallas Federal Reserve Bank President Richard Fisher said he expects the US economy to either slow or stop growing altogether during the rest of this year,and offered up a recovery in 2009 only as a possibility. In addition, Fisher hinted that while inflation may subside in the midst of this slowdown, the Fed may yet be forced to tame rising prices by raising the... [more]

From Thomson Reuters today . . . Dallas Federal Reserve Bank President Richard Fisher said he expects the US economy to either slow or stop growing altogether during the rest of this year,and offered up a recovery in 2009 only as a possibility. In addition, Fisher hinted that while inflation may subside in the midst of this slowdown, the Fed may yet be forced to tame rising prices by raising the fed funds rate. "I expect US economic growth will decelerate to a snail's pace, if not completely grind to a halt, in the second half of this year," Fisher said in remarks in Colorado today. "Indeed, we may see the slowdown extend into 2009 as the excesses that drove the housing markets unwind before the economy can again gear up to its cruising speed," he said, adding that it is "quite possible" the US will "resume a more normal growth trajectory" sometime next year. (Not.) Before making these predictions, Fisher said his "best guess" is that the US grew faster than the 1.9% reported so far by the government in the first quarter of 2008. But he said several factors are expected to SHUT THIS GROWTH DOWN,including ongoing credit market turmoil, a housing downturn that has "YET TO FIND ITS BOTTOM," and shrinking US real income. Another factor is rising inflation, which he said is caused in part by the development of China, India and other countries for which the US is a major export market. As these countries develop, the price of their goods increases and the price of oil increases, which adds up to inflation pressures in the US. Fisher, perhaps the most aggressive inflation hawk in the Fed, warned again that inflation is too high for his liking, as consumer prices rose 10.3% in July and 5.5% over the last year. Comparing the US economy to a python, Fisher said it is possible that the US will be able to digest these higher prices, but hinted that the Fed must be ready to raise interest rates in case it cannot. "Unless the python that is the US economy can quickly pass the recent burst of cost-push pressures, we risk a reinforcing spreading of inflationary impulses and expectations," he said. "Should this happen and the Fed were to fail to address it, we would run the risk of losing the public's confidence in our ability to constrain inflation." Still, Fisher said it is "too early to tell" whether a rate increase is needed to help settle the economy's stomach, or whether reduced economic growth on its own will reduce inflation. Which means that for now, "monetary policy makers must remain poised to act if slowing growth fails to contain inflationary pressures," he said. [less]