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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED

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To: Dealer who wrote (1)	10/4/2000 1:59:29 PM
From: T L Comiskey	of 65232

Fed's McTeer Hails Productivity Gains WASHINGTON (Reuters) - Sharp productivity gains over recent years have enabled the U.S. economy to grow at annual rates of 4 percent or more without risking rising inflation, Dallas Fed President Robert McTeer said on Wednesday. ``The productivity increase...raises the so-called noninflationary speed limit of the economy from 2 to 2.5 percent to 4 percent, or more,'' he told the National Association of Manufacturers in a speech. McTeer has long been one of the most outspoken proponents inside the Fed of the theory that rising efficiency gains in the U.S. economy have pushed up its growth potential while keeping a lid on inflation. Productivity outside the U.S. farm sector -- measured as output per hour -- has been growing at annual rates of over 5 percent in recent months. McTeer said he was unsure how much of those gains were caused by fundamental, or structural, changes in the economy rather than by a mere cyclical improvement. But he added: ``I vote for structural. How could it be cyclical when there's been no cycle?'' McTeer, who is not a voting member of the U.S. central bank's rate-setting Federal Open Market Committee (FOMC) this year, said he had ``no comment'' on the outcome of Tuesday's FOMC meeting. The FOMC left key short-term interest rates unchanged but warned of continued inflation risks because of rising energy prices and the nation's tight labor market. Fed officials usually adhere to an unwritten rule barring them from commenting directly on Fed policy a week before and after FOMC meetings. On the topic of labor markets, McTeer said a higher economic speed limit meant the economy could tolerate lower unemployment rates than those that might previously have sparked inflation. Some Fed officials worry the nation's current jobless rate of 4.1 percent could stoke inflation by forcing employers competing for workers to raise wages. At the same time, McTeer said there were signs of slight increases in inflation. He said inflation was ``down, not out.'' He said economists who claimed that inflation had recently begun to creep up had ``a point,'' but he did not elaborate.

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