Warsh Says Markets, Economy Are Getting Better, Fed Should Be Predictable

Federal Reserve Governor Kevin Warsh said financial markets and the economy are getting better without being fully healed, and the central bank can help foster growth by acting in a predictable way.

“Markets are normalizing if not normal,” Warsh said today during a panel discussion at Georgetown University in Washington. “The economy is improving if not improved.” For the Fed, “the clearest that we can be about decisions we’re going to make going forward, the better,” he said.

Warsh didn’t discuss Fed policy or the economic outlook in more specific terms. Fed officials signaled last week they are considering easing monetary policy, including restarting large- scale asset purchases, to bring down unemployment that’s persisted at 9.5 percent or higher for the past year.

Government fiscal, trade and regulatory policies “need to be growth friendly,” and in reviewing some policies of recent years, “you come to the conclusion we are inevitably, given those policy choices, in a slower-growth environment,” Warsh said at the event hosted by Georgetown’s McDonough School of Business, the New York Stock Exchange and the Financial Times.

Warsh said a reliable currency is a “great historical strength” for the U.S. that allows investment from sources outside the country. In general, having “certainty” over foreign-exchange rates is “useful” for businesses, he said. Economic outcomes tend to be worse when governments are preoccupied with foreign-exchange policy, he said.

The Fed’s Open Market Committee said after meeting Sept. 21 that the U.S. recovery “is likely to be modest in the near term.”

Bush Appointee

Warsh, 40, was appointed to the Fed by then-President George W. Bush in 2006 after working as a White House economic- policy adviser and a Morgan Stanley investment banker. He worked closely with Fed Chairman Ben S. Bernanke and other government officials on the U.S. response to the financial crisis in 2008, including part of the Troubled Asset Relief Program.

Fed policy makers next meet Nov. 2-3, when some economists expect the Fed to take new policy action to lower interest rates, aiming to boost growth and keep inflation from declining too much. Central bank officials will present updated projections for gross domestic product, unemployment and inflation at the meeting.

Economists surveyed by Bloomberg News this month are projecting U.S. growth this year of 2.7 percent and 2011 growth of 2.5 percent, based on the median estimates. That compares with the median forecasts in August for 3 percent this year and 2.8 percent next year.

Warsh has voted with the majority on all FOMC interest-rate decisions.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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