Fed Official Predicts Quick Return to Moderate Growth

The U.S. economy is rebounding to an annual growth rate of 2% to 3%, even as inflation dangers recede, San Francisco Federal Reserve Bank President Robert T. Parry said Thursday.

“We’ll have a fairly quick return to the kind of moderate, sustainable growth that the economy needs,” Parry said before a gathering of Partners With Business, a group of local business leaders. “The second quarter GDP [gross domestic product] figures weren’t as weak as they appeared on the surface.”

From April through June, the economy expanded its output of goods and services at a meager 1.3% yearly rate, after inflation.

That figure apparently exaggerates the degree of weakness because it reflects cuts in swollen inventories of unsold goods, Parry said. “It now appears that inventories are in better balance with sales, so a good deal of this depressing factor appears to be behind us,” he said.

Parry also said consumer demand, which accounts for two-thirds of the economy’s performance, is growing about 2.5% a year, a “modest and sustainable” pace.

Federal Reserve Board policy-makers will meet Nov. 15 to decide whether to cut interest rates to spur economic growth.

This year, the Fed has moved just once, on July 6, to cut interest rates. It reduced the federal funds rate on overnight loans among banks to a 5 3/4% target in a bid to bolster a sluggish economy. In its Aug. 22 and Sept. 26 meetings, the Fed left rates unchanged amid signs that the economy was showing signs of strengthening.

Parry said the Fed’s goal is to slowly squeeze remaining inflation out of the economy, to attain stable prices without causing weakness that would harm job creation. There were about 249,000 more Americans working at non-farm jobs in August than there were in July.

The Labor Department will report today on the employment situation during September. Analysts surveyed by Bloomberg Business News estimated that 161,000 jobs were created during the month.

“We want monetary policy to have the smallest possible adverse effect on economic activity during the transition” to stable prices, Parry said.