The prospect of rising U.S. interest rates is not enough to derail a robust U.S. economic recovery, Treasury Secretary John Snow said.
Speaking to reporters ahead of a closed-door breakfast session on Thursday with a group of business chiefs including discount brokerage founder Charles Schwab, Snow said higher market rates reflect the economy's growing strength.
"The business community accepts the fact that in a recovery one of the normal developments is increased demand for capital," Snow said. "I think they're just baking it into their plans as a normal part of what they'd expect in a recovery."
The U.S. Federal Reserve is expected to raise its official federal funds rate a quarter percentage point from its current 1 percent — its lowest since 1958 — when its policy-setting Federal Open Market Committee meets June 29-30.
Snow noted some rates, including for mortgages and other borrowing, already have gone up but said that wasn't troublesome. "A rise in interest rates is not an inhibitor of the recovery, it's part and parcel of the recovery and what you'd expect to see," he said.
The U.S. Treasury chief has been crisscrossing the country, highlighting the economy's vigor ahead of November presidential elections and seeking credit for President George W. Bush's tax cuts as the tonic that lifted it out of the doldrums that followed the 2001 recession.
Snow said attention given to the conflict in Iraq has "crowded out the good news on the economy" but said that should change after June 30 when the United States is to hand over full sovereignty to Iraqi authorities.
"The focus then will shift to the Iraqi authorities and that will allow more time to focus on the U.S. economy," he said, adding "It looks to us like all the signs are positive for the economy."
Oil prices easing
In response to questions, Snow conceded that costlier imported-oil prices had to be monitored, but cited Federal Reserve Chairman Alan Greenspan's comments to Congress on Tuesday that they were not yet at a threatening level.
"As with Chairman Greenspan, I don't expect oil prices to produce a big negative for the recovery we're in," Snow said, adding that prices, including retail gasoline, seemed to be moderating.
"What (would be) troublesome is a significant spike that stays," he said, but that might not be the case. "It appears that maybe some of the geopolitical risks or uncertainties are being looked at more benignly by the markets because we do see this fairly significant and quick reversal of the energy price picture."
Less energy demand from China, where authorities are trying to cool overall price levels through costlier credit and other measures, was helping restrain prices, Snow suggested.
He added that he hoped Beijing recognized that its task in curbing red-hot economic growth would be easier if it practiced an interest-rate policy more like that of the United States and if its currency-exchange rate was flexible.
The Bush administration has been pushing China to modify its current policy of pegging its yuan currency at 8.3 to the U.S. dollar, egged on by U.S. corporations that claim it gives Chinese-made consumer goods an unfair pricing advantage in export markets.
"China appears to be concerned about overheating and is taking steps to deal with it," Snow said. "The steps they are taking would be more effective if they relied on a traditional monetary policy rather than on the types of directives they are compelled to rely on because monetary policy is constrained by the peg."
Snow said he had "no timetable" to forecast when China will change its currency policy, but "I think they're clearly on a path where they are going to take significant preparatory actions toward a flexible exchange system in the not too far distant future."