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Fed Official: Inflation Still Key Risk
MADISON, Wis. (Reuters) - Rising inflation still poses the
main risk to the U.S. economy even though growth has slowed
from its breakneck pace of 1999 and earlier this year, Chicago
Fed President Michael Moskow said on Tuesday.
Addressing the Madison Economic Forum, Moskow said the
nation's tight labor markets and higher energy costs had so far
failed to foster expectations of rising prices -- but that they
harbored the potential to do so in the future.
"On the whole, the economic environment seems to be in much
better balance than it was in May, but the risk of heightened
inflation pressures still dominates," Moskow said, echoing a
statement by the Fed released after the last meeting of its
rate-setting Federal Open Market Committee on Nov. 15.
The Fed has kept key short-term interest rates on hold
since May, following six rate rises since June 1999. But it has
repeatedly warned that rising inflation is the prime risk to
the economy's record expansion, leaving the door open at least
in theory to renewed rate increases in the near future.
The Fed next meets on Dec. 19 amid expectations it will
keep borrowing costs unchanged once again as signs of a
slowdown in the world's biggest economy mount.
"Most of the available economic information since May has
pointed to a moderation in demand growth from the frenetic pace
we observed in late 1999 and early 2000," said Moskow, who will
be a voting member of the FOMC next year.
Rising productivity growth has helped narrow the gap
between demand and the economy's supply potential, he said.
"Moreover, demand is likely to be tempered a bit further by
recent tightening in financial market conditions," Moskow
added. "Indeed it's possible the economy could expand at a rate
below potential for awhile." |
