Fed's Duke says costly gasoline hurting consumers

PHILADELPHIA (Reuters) - Consumers are struggling with higher gasoline costs and a weak housing market, Federal Reserve Governor Elizabeth Duke said on Tuesday, in remarks that suggested she is unlikely to be pressing for higher interest rates soon.

Federal Reserve Bank of St. Louis President James Bullard struck a similar tone in a speech late Monday, saying a pause once the $600 billion quantitative easing program ends in June would give the Fed time to assess the strength of the economy. Bullard said U.S. economic growth had disappointed in the first half of the year.

The Fed cut interest rates to near zero in December 2008 and has kept them there since. Bullard said keeping monetary policy on hold signals no change to the Fed's pledge to hold rates extremely low for an extended period.

Duke's remarks, while focused primarily on financial literacy, offered a flavor of her views on the economy.

"The financial crisis and the slow recovery from it has obviously had a dramatic impact on the financial decisions made by American families. Many now have fewer financial resources and limited options," Duke told a conference sponsored by the Boston Fed.

"Many families, particularly those with low-to-moderate incomes, are actually facing the decision between buying gas to drive long distances to work and paying their mortgage."

After a retreat in crude oil prices, U.S. gasoline costs fell to $3.85 a gallon in the latest week, the lowest level in five weeks, the Energy Department said on Monday. Although prices are down 11.1 cents from the previous week, the national gasoline price is still $1.06 higher than a year ago.

The economy appears to have hit a soft patch in recent months after several quarters of strong growth. U.S. gross domestic product expanded at an annualized rate of just 1.8 percent in the first quarter.

Speaking in Philadelphia and St Petersburg, Russia, respectively on Tuesday, Kansas City Fed President Thomas Hoenig and Boston Fed President Eric Rosengren offered their views on financial regulation.

Hoenig made the case that banking organizations under the public safety net should be restricted to activities that don't hamper the assessment, monitoring and control of risk -- such as making loans and taking deposits.

Dealing, market making, brokerage, and proprietary trading, he said, are not core banking services and should thus be off limits.

"The consequence of expanding the safety net to an ever-increasing range of activities is to invite a repeat of our most recent crisis," Hoenig said.

"The social costs of additional activities and the associated complexity can greatly exceed the private benefits to an individual bank," said Hoenig, who has been amongst the most vocal Fed officials calling for a break up of banks deemed "too big to fail".

Rosengren, for his part, told a conference of international regulators that capital should be narrowly defined as that which is easily available to absorb losses during a financial crisis.

Rosengren said that during the 2007-2009 crisis banks that had adequate capital according to broader definitions were unable to calm investors.

"Clearly we need to focus on the narrow definitions of capital -- that which can readily absorb losses," Rosengren said.

Some U.S. regulators have raised concerns that capital required under the new Basel III global regulatory standard could be differently defined around the world.