nytimes.com
I wonder if this will get anyone's attention tomorrow?
June 1, 2000
Fed Leaves Door Open for More Rate Rises
Filed at 9:46 p.m. ET
By Reuters
WASHINGTON (Reuters) - U.S. central bankers on Thursday indicated that they were not done raising U.S. interest rates, saying there were still signs that demand for goods and services was outpacing supply in the U.S. economy.
In separate appearances throughout the country, Fed officials said that inflation may be threatening the U.S. economy even though the Fed raised key U.S. interest rates six times in the last year.
``The longer-term trend appears to me...to be one where inflation may be rising,'' Federal Reserve Bank of Richmond President Alfred Broaddus said in a speech to the Washington Association of Money Managers.
``Inflation has crept up,'' Kansas City Fed President Thomas Hoenig said in a speech at Southern Methodist University.
Broaddus and other Fed officials pointed to recent reports that showed consumers have a high level of confidence in the economy, which is leading them to spend freely. He also said that there were signs that wages were rising due to a small U.S. unemployment rate, which sunk to a 30-year-low in April.
The Labor Department will release its monthly employment report on Friday.
``Despite the possibility of some moderation being signaled in some of the numbers...I don't think I can say I see any real definitive evidence that the growth of demand is decelerating in a significant way,'' Broaddus said.
Broaddus currently is a voting member on the Fed's rate-setting Federal Open Market Committee. Hoenig will rotate into a voting position next year.
JURY IS STILL OUT
Last month, the FOMC dropped its policy of raising rates by a quarter percentage point at a time and raised interest rates by half a percentage point, the biggest rise in five years.
The Fed wants to slow the economy enough to stop inflation without halting the record-length U.S. expansion.
But Fed officials said they have yet to witness the fruits of their labor due to lags between when they raise rates and when the effect of those rises are seen in the economy.
``The jury is still out,'' Federal Reserve Board Governor Edward Gramlich said in response to a question on the effectiveness of the Fed's rate rises that was posed at the Global Colloquium for Women Corporate Directors.
Gramlich said that among the difficulties facing monetary policymakers was the impact of the ``new economy,'' which he said boosted productivity and allowed the economy to grow at a faster pace with a lower unemployment rate than before.
``It means that the car can go faster with the same degree of safety as it did before,'' he said. But, ``nobody at this point knows exactly how much faster it can go.''
Broaddus suggested that productivity gains still have not kept up with increases in demand.
``Even with a rising trend in productivity, even if we take a pretty optimistic view of that, we have a pretty significant supply/demand imbalance in the U.S. economy,'' he said.
Fed officials also sought to downplay claims on Thursday that the Fed took a bold step when it raised rates a half a percentage point in May. Instead, with inflation on the rise, a 50-basis-point move could still be viewed as gradual.
``Though we did take a bigger step at our last meeting, I still think it's in keeping with the gradual approach'' of raising rates, San Francisco Fed President Robert Parry told business leaders in Salt Lake City.
``It's risky just to sit back and wait for an upward trend in inflation to show up before we do something,'' Parry, a voting member on the FOMC this year, said.
Broaddus pointed out that a recent rise in inflation had muted the impact of the rate increase on the economy, based on the trend for the ``real'' interest rate, which is the level of short-term interest rates minus inflation.
``The result is that a 50-basis-point move may, in terms of the increase in real rates, be the equivalent of a 25-basis-point increase in the nominal funds rate several months ago,'' he said. |
