The U.S. economy is on track after a weak stretch and an uptick in consumer prices seems to have passed, Dallas Federal Reserve Bank President Robert McTeer said Tuesday.
"The inflation scare is over with," McTeer, who is not a voting member of the U.S. central bank's Federal Open Market Committee this year, told a luncheon sponsored by his bank's San Antonio branch.
"I think that we are back on track from our soft patch."
McTeer also said he did not think oil prices, which toppled records again Tuesday, posed a major threat to growth.
He said the economic weakness that began mid-year moderated market expectations for how fast the Fed would raise interest rates — which the central bank has hiked three times in 2004 to the current level of 1-3/4 percent.
"At 1-3/4 percent, and inflation running about that or a little above it, real short-term interest rates are still negative or close to negative," he said, adding that he did not know where rates would go when the Fed's policy-setting Open Market Committee next met, in November.
"We can be 'measured' and be 'patient', but maybe not for a 'considerable period'," McTeer joked in an apparent reference to the Fed's carefully couched post-meeting language.
Turning to oil prices, the Dallas Fed chief said they are not as high in inflation-adjusted terms as in the early 1980s.
"It is possible to keep inflation under control even with high oil prices," McTeer said. He added, however, that the oil price rise "has hurt the economy. It's like a tax increase."
The Dallas Fed chief said on the whole he was not worried that lofty oil costs could cause a recession.
"It is important to distinguish between high oil prices caused by demand and high oil prices caused by supply cutbacks as we had with OPEC in the 1970s," McTeer said.
"High oil prices caused by demand are less likely to lead to a recession because it is the strength of the economies that is pulling it up. High oil prices caused by supply cutbacks are more likely to lead to a recession because (supplies are) just not there," he added.
McTeer said prices are rationing the available supply right now and that this means the current spike is not as dangerous as in the 1970s.
NYMEX November oil futures settled at $51.09 a barrel on Tuesday after hitting a record trading high of $51.29 earlier.