FED Fisher Says

Higher inflation remains a bigger risk for the economy than a sharp slowdown of growth, said Richard Fisher, the president of the Dallas Fed bank on Monday.

"I continue to fret more about inflation than I do about growth," Fisher said in a speech prepared for delivery in Monterrey, Mexico.

Many economists see the economic slowdown accelerating, but Fisher has remained upbeat. In a speech earlier this year, he said economists predicting a recession sounded like "Eeyore," the gloomy donkey from the Winnie-the-Pooh children's' books.

"While I am well aware of the risks to economic growth, the history of inverted yield curves, and the ever present possibility of exogenous shocks in a politically hazardous world, the 'balance of risk' in my book, is still tilted to the inflation side of the equation," Fisher said.

Fisher dismissed the benign August PPI report released last week as unreliable. The best gauges of inflationary pressures "are not yet comforting," he said.

Fisher said the August core CPI "was closer to 3%, not 2%."

"Inflation remains elevated and leaves us small choice but to remain vigilant," Fisher said.
Fisher said there was a "serious correction" taking place in the housing sector, but said outside this sector, the economy is "healthy and robust."

Fisher said the correction in housing was inevitable especially after cheap financing and mortgage "innovations" added to the fervor.

"Regardless, the market for residential real estate had to adjust and it is now doing so," Fisher said.

"As long as that correction is orderly and does not threaten the economy's financial stability, we are best advised to let it run its course, monitoring it carefully to ensure that it does not infect the rest of the economy," he said.

Helping to mitigate downside risks is the fact that consumers are getting "a shot in the arm" from lower gasoline prices, he said. In addition, the rest of the world is growing faster than the United States.