St. Louis Federal Reserve President William Poole on Friday dismissed fears that the U.S. economy was heading into a recession, and said there was no pressing need for the central bank to act against a falling stock market.
"We do not see a recession coming," he told a business audience after delivering a speech in Santiago, Chile, on energy and the U.S. business cycle at the American Chamber of Commerce.
Former Fed Chairman Alan Greenspan alarmed some investors, and may have contributed to a worldwide downturn in stock markets, with a warning earlier this week that a U.S. recession was possible, although not likely.
Poole, a voting member of the U.S. central bank's interest rate-setting committee this year, said the decline in equity prices was not a reason for the Fed to get involved at this stage. Nor did he think that stock prices were obviously too high.
"At this point it seems to me there is no pressing need for any immediate action," Poole told reporters after the speech. "At this present time the stock market valuation does not seem to be elevated," said Poole.
"My sense is that the sharp decline on the stock market was mostly unexplained, not an obvious outcome of some external shock... I don't think it's fully understood," he said.
U.S. stocks, as measured by the benchmark S&P 500, have shed more than 3% for their worst weekly percent drop since August 2004.
Concern over the health of the U.S. economy, together with worries over its subprime mortgage sector which involves riskier borrowers, were among the factors cited for unsettling investors this week, although the drop began in China on concerns that authorities there might act to curb speculation.
Poole said economic fundamentals did not seem to point to further slides in stock prices, saying: "We don't see the accumulating evidence that would justify ongoing market declines."
Although it was not possible to completely rule out a sharp downturn in growth, Poole said, his outlook was for steady growth this year.
"Obviously, there could be a recession, and I see lots of news letters coming into my email inbox and I see some people forecasting a soft economy and other people forecasting surprising strength in demand. And so there are a lot of differences of opinion," he said.
"I would say that the consensus view, and this is not just my view, but the consensus view is real growth in the neighborhood of 3%... No guarantee. That is the outlook we have," he said.