DENVER-
Interest rates should remain stable to allow the economy to grow despite pressures on consumer pocketbooks such as the struggling housing market, the head of the Federal Reserve Bank of Kansas City said Tuesday.
Risks associated with the housing market and slowing in some industry sectors should be weighed against positive factors including strong government spending and the growing export sector, said Thomas Hoenig, a member of the Federal Reserve System’s Federal Open Market Committee.
The future of the interest rates will be defined in how those risks play out as the economy moves forward, he said.
“Our policy rate is 5.25 percent,” Hoenig said. “In my judgment, that’s modestly firm, allowing the economy to move forward and expand. The outlook is generally positive with recognized risks on both sides.”
Hoenig made the comments to a downtown economic forum sponsored by the Federal Reserve that drew scores of business leaders.
It was just a week ago that the Federal Reserve voted to leave the key interest rate at 5.25 percent—the seventh consecutive meeting at which the Fed has kept rates unchanged.
Hoenig, who is president and chief executive officer of the Federal Reserve Bank of Kansas City, reiterated that decision Tuesday, saying he believed the economy will strengthen despite the past difficult year.
In addition to the housing market, investment has slowed related to the automobile industry and somewhat slowed related to software, which in turn has slowed momentum for the economy, he said.
On the positive side, global demand for U.S. goods is increasing and government spending is occurring at both the federal and state level, he said.
He predicted the economy will gradually improve over the next year, although there are key risks such as the housing industry, that might slow its pace.
Over the long term, economic growth will be affected by several factors such as the retiring baby boomers, growth of the labor force, immigration and education, he said.
