The U.S. economy does not appear to be headed for recession because of the "aggressive" easing by the Federal Reserve and the swift progress manufacturers have made in cutting back excess stock, San Francisco Fed President Robert Parry said on Wednesday.
Parry said that economic growth could recover by the end of the year after first-quarter growth proved faster rate than many economists had expected.
"I really don't have much information about the current quarter, but I doubt - strongly doubt - that we are in a recession," Parry told a business group here.
U.S. gross domestic product (GDP) posted annual growth of 2.0 percent in the first-quarter, recovering from a weak 1.0 percent pace in the last three months of 2000.
Parry said the Fed's easing to date, cutting the target for the funds rate by 2 full percentage points to 4.5 percent, stood out "as one of the most aggressive periods for the Fed."
The central bank cannot aim policy solely at the short-term goal of keeping unemployment low because an overly stimulative policy would risk undoing its long-term goal of keeping prices stable, Parry said.
Asked whether those remarks had been meant as a commentary on the current state of the business cycle, Parry said they had not. But he said it was a response to those who had criticized the U.S. central bank for being "insufficiently expansionary" earlier in the slowdown.
"If we stimulated the economy all the time, the gains against employment you would see are temporary and that is at best," Parry told the business group.
Although the overall risks remain tipped toward more economic weakness, the other unexpected, positive development for the U.S. economy has been the speed at which companies have run down inventories, Parry said.
"We have been impressed by how fast companies are adjusting their inventories," he said.
Overall inflation appears to have picked up - a trend especially evident in California - but the slowing economy and a stable dollar should help keep that in check, Parry said.
"I think you could make a case that inflation has accelerated," he said. "Is that a major concern for the future? I don't think so."
California looks more vulnerable to the economic slowdown than other parts of the country because of the concentration of high-tech businesses in the state, a serious energy crisis, and the risk of a slowdown in Japan's economy, Parry said.
Despite those risks for most populous state, monetary policy must be directed in the interests of the broader economy, Parry said.
The Fed has resisted calls to take action on the California power crisis, since the basic problems involve increasing generating capacity and creating incentives for conservation by allowing higher retail electricity rates to send "the right price signals," he said.
As a regional Fed president, Parry attends meetings of the policy-setting Federal Open Market Committee, but will not cast votes on policy again until 2003.