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Foreign central banks reduce U.S. government debt holdings
By Reuters
7:28p ET Thursday, October 7, 2004
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=6446137
NEW YORK -- The widening U.S. current account
deficit will require a decline in the value of
the dollar, a top Federal Reserve official said
on Thursday.
Dallas Fed President Robert McTeer said there were
only two ways to address the deficit: for U.S.
incomes to shrink so that people purchase fewer
imports, or for the dollar to weaken.
"Over time, there is only one direction for the
dollar to go -- lower," he said in response to a
question at an event hosted by Market News
International.
The current account gap, the broadest measure of
trade and investment flows between the United
States and the rest of the world, ballooned in the
second quarter to a record $166.18 billion.
On the subject of interest rates, McTeer made it
clear that a significant deterioration in the
economic data could prompt the central bank to
pause its monetary tightening campaign.
But he also offered a relatively upbeat view of
economic growth going forward, predicting
third-quarter gross domestic product growth of 4
percent or above and implying that such a pause
might not therefore be imminent.
"Certainly, there could be a number so bad that
we would pause," said McTeer, who is not a
voting member of the policy-setting Federal
Open Market Committee under this year's rotation.
However, he said during later audience questioning
that it is also possible the Fed could accelerate its
tightening cycle should the data dictate this is
needed.
Price increases would be unlikely to threaten the
Fed's monetary plans, he said, arguing that the
past three months of data had put inflation fears
to rest.
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