Fed's Fisher Says Lower Oil Offsets US Housing Downturn

"If I am wrong, then better to go in the direction of combating inflation because of the great damage that it causes," he said.  Fisher, who is not a member of the Federal Reserve's rate-setting committee this year, described the downturn in the housing market as a "very serious problem" which had been exacerbated by keeping rates too low for too long.  But he thought the U.S. economy would rebound in the fourth quarter from the slow annual growth of 1.6 percent in the third quarter.  "There are counterforces (to the housing downturn) like the lower oil prices and the boom in commercial property," Fisher said.

Fisher also feels that lower energy prices also means companies are talking less about passing higher costs onto consumers and inflation pressures were lower than they were six months ago.  The Fed halted a two-year campaign of tightening credit costs in August and has kept rates on hold, amid a slowing in the housing market.

According to a recent Reuter’s poll of 60 economists,  it is expected that the Fed will cut benchmark rates to 5.0 percent by mid-2007, even though the housing slowdown may stabilize.

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