Fed's Fisher: No Need for Emergency Rate Cut

The U.S. Federal Reserve took very "deliberate action" when it lowered key interest rates rapidly but this does not necessarily mean more of the same is in store, a top Fed official said on Friday.

The Federal Reserve headquarters in Washington, DC.
The Federal Reserve headquarters in Washington, DC.

Federal Reserve Bank of Dallas President Richard Fisher also played down the prospect of an emergency out-of-session rate meeting and said he was optimistic about long-term economic prospects.

"I would discourage you from thinking that simply because, or because of, significant action in credit markets like we had yesterday, that suddenly we are going to have an Open Market Committee meeting and that suddenly we are going to move Fed funds rates in response," he told Bloomberg Television.

"We reacted with very deliberate actions that took place ... in a very short period of timeframe, and I think that it shouldn't be the markets' expectation that we will continue to react in that manner."

The Fed has slashed rates 2.25 percentage points since mid-September and is expected to ease policy further from the current 3 percent level. Markets had speculated about the odds of another January-style out-of-session cut but Fisher made it clear this was not his preference, although he said he was just one member of the FOMC.

Fisher, who dissented from the Fed's last rate cut on Jan. 30, was speaking on the sidelines of a Bank of France seminar on globalization and monetary policy in Paris, also attended by San Francisco Federal Reserve Bank President Janet Yellen.

Yellen told the conference that the Fed, which is expected to cut rates to as low as 2.25 percent at its next meeting on March 18, faces an "unpleasant combination" of risks to inflation and growth.

"The U.S. economy is particularly exposed to downside risks from the unwinding of the housing bubble and disruptions in financial markets," Yellen said.

She said the U.S. labor market has some slack, and if these downside economic risks materialize, more slack could emerge, adding that this would tend to dampen inflation.

Yellen -- who unlike Fisher is not a voting member of the FOMC this year -- also said inflation risks were "roughly balanced" and that the Fed "cannot take for granted that inflation expectations will remain well-anchored."

Fisher said the U.S. economy was slowing down, but added he was very optimistic about long-term economic prospects and that the central bank does not react to short-term developments.

He also said: "I am not driven in my decision-making by what the Fed funds futures market is predicting, instead I am driven by what's best for the economy.

The U.S. dollar dropped to a fresh low against the euro on Friday on prospects of a widening rate gap between the United States and the euro zone, where rates were kept on hold at 4 percent on Thursday.