Dallas Federal Reserve President Richard Fisher said on Friday that it will take some time for interest-rate cuts the Federal Reserve has made since last September to kick in and boost the economy.
"Nobody knows with exact precision how much time it takes," he said in a speech to the Petroleum Club of Fort Worth, "At least six months and perhaps longer."
He said that it was important not to have the stimulus of lower interest rates hit when inflation was rising.
"What one has to be concerned about is that, having taken the actions we've taken in order to bolster growth...that we don't have this rubber hit the road just as we are having inflation act upon us at a level that is uncomfortable for policy-makers."
He noted with inflation running at an annual rate around 4 percent it could significantly whittle away the value of assets over years if left unchecked.
Fisher said the Fed's task currently is to find a balance between helping the economy avoid slipping into recession without taking policy actions that might fire inflationary pressures.
"Horns of a Dilemma"
Fisher said that a mood of pessimism is hurting the business outlook and that the U.S. central bank must be careful not to unleash price rises as it combats slower growth with interest rate cuts.
"We have to be mindful of that fact that we have to create the conditions for employment growth, at the same time be careful that we don't stir the embers of inflation," he said in a speech to the Petroleum Club of Fort Worth.
"And that represents the horns of a dilemma presently," he added.
Rise In Business Investment
The fiscal stimulus package recently signed into law by President George W. Bush should help boost business investment, Fisher said.
"There's probably more to this in terms of the acceleration of capital expenditures than meets the eye," he said in a speech to the Petroleum Club of Fort Worth. "That should be a stimulus, and if it's done properly, it should not necessarily lead to inflationary pressures," he said.