Fed’s Daly says slowing economy could help prevent recession

By Ann Saphir

SAN FRANCISCO (Reuters) – Growing worries about the U.S. economic outlook late last year sent stock markets plunging and tightened financial conditions, but the expected economic slowdown this year is actually a good thing, San Francisco Federal Reserve Bank President Mary Daly said on Friday.

“The economy is now self-bridling itself, coming back down to a sustainable pace,” Daly told the Bay Area Council Economic Institute. “That will if anything help us prevent a recession.”

Daly did not comment directly on the Fed’s decision last month to put interest-rate policy on hold until the central bank has more clarity on the economic outlook. But her remarks suggest that she believes that economic growth is settling into a sustainable pace that needs neither higher interest rates to prevent it from overheating, nor lower interest rates to give it more juice.

Daly also said that while the partial U.S. government shutdown that ended last month will have mostly only a transitory impact on economic growth, she is concerned that another shutdown could have a more lasting negative impact on uncertainty, confidence and ultimately economic growth.

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