For release: Nov. 20, 2001
Contact:Charles B. Henderson, (314) 444-8311

Long Run Economic Prospects "Bright, Unchanged in Fundamentals," Says St. Louis Fed's Poole

Link to speech

LITTLE ROCK -- "Our economy is resilient, both because our people are resilient and because we rely so greatly on decentralized markets. These markets will assist us in reallocating our economic resources in ways that will deal effectively with the new realities we face."

That was the theme of remarks by St. Louis Federal Reserve Bank President William Poole as he spoke to members of the Little Rock Downtown Rotary Club. Commenting on negative effects on the economy after the September 11 attacks and anthrax scares, Poole said that no one knows how long these effects will last, adding that forecasters predict a resumption of growth in the first half of next year.

Poole said he believes the U.S. economy contains "very powerful forces" promoting growth and full employment. "Our society rewards entrepreneurs and innovators," he said. "We're much better off in a society where people may sometimes be excessively exuberant as some may have been in the late 1990s than one in which few are prepared and able to take risks." Underscoring that strength, Poole said, is the Federal Reserve's commitment to keep inflation low, "a commitment that is widely believed in the financial markets."

Poole cited several examples of entrepreneurial activity and how existing technology is being transferred to address newly emerging problems and develop new products and services. In one case, "Manufacturers of equipment generally used to prevent bacterial contamination of food have applied electron beam technology to decontaminate mail sent through various Washington, D.C. postal facilities," he said. Poole added that the cost and effectiveness of using that technology broadly still needs to be determined. "There are many opportunities for new approaches to old problems or to determine solutions for new problems," he said.

Poole noted that firms and jobs are created and destroyed continuously in our economy so that ultimately the country's resources are used most productively. "This characteristic has been noted frequently over the past several years as an explanation of why 'high-tech' has helped production here more quickly and intensively than in other countries," he said. "Thus, I believe that the transition to an economy that consumes a higher level of security can be accomplished with little if any disruption of the long-term productivity trends that are the source of our improving standard of living."

The St. Louis Fed president noted that keeping the public's expectations of inflation low also helps the U.S. market system work. "There is no evidence that behavior since September 11 has been motivated by fear of inflation," Poole said. "In previous crises, such as the outbreak of the Korean War, fear of rising prices considerably complicated the situation. That we take stable prices almost for granted is a great strength of our current condition."

Poole also reminded the audience that the Federal Reserve plays an important part in enabling consumers and businesses to make and receive payments promptly. "Immediately after September 11, the Fed provided a huge amount of liquidity through various channels, and made cash readily available so banks could keep their ATMs stocked," he said. "We worked long and hard to keep the payment system working, and we succeeded."

Poole said he didn't want to minimize the size of the current shock, but did want to caution against maximizing it. "The economy has pushed ahead following previous shocks, such as the Korean War, the Cuban missile crisis, the Kennedy assassination, the 1974 and 1979 energy shocks and other events," he said. "I'm confident that given our experience, our economy's characteristics and the strength of our people, the economy will be fine. We will get back on course before too long."

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