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Fed Officials Signal No Rate Rises Soon
Fri Nov 14, 6:27 PM ET Add Business - Reuters to My Yahoo!
By Sarah Edmonds
WASHINGTON (Reuters) - Frank comments from Federal Reserve (news - web sites) officials on Friday bolstered a growing conviction that the U.S. central bank would not start raising interest rates until well into next year despite a pick-up in growth.
Reuters
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Philadelphia Fed President Anthony Santomero said that while short-term rates could not stay at 45-year lows forever, slack in factory capacity meant U.S. policymakers needn't rush to hit the economic brakes.
"In light of significant excess capacity and benign inflation pressures, any policy adjustment need not take place in the near future," Santomero told a Philadelphia Fed forum.
His remarks were the latest in a series from policy-makers suggesting rate increases aren't imminent.
U.S. Treasury prices rose despite an uptick in consumer confidence and a surprise increase in producer prices, as investors took heart from the signs higher rates were not looming around the next corner.
Later, Richmond Fed President Alfred Broaddus told reporters at the same conference the Fed would keep its assurance of low rates for a "considerable period" until the risk of too-low inflation lessened.
"If we reached a situation where we could conclude that the risks were more balanced...and it becomes clear that the recovery is gaining momentum -- and part of that would be that disinflation risk (has fallen) -- that would be a time when you would look at your position," he said when asked in what economic environment the Fed would drop the reference.
"It would be heavily conditioned on any change in the balance of risks," Broaddus added.
Nervous that too-low inflation gave it an insufficient buffer if the economy went sour, the Fed in August took the unusual step of saying it would keep rates low for a "considerable period" -- words that have loomed large in the markets in the past few weeks as growth has accelerated.
Some economists believe the phrase will go soon, although they say the Fed may be wary of the impact on markets. That, however, would not necessarily indicate an imminent rate increase from 1958 lows, hit after 13 cuts since 2001.
The Wall Street Journal reported on Friday that officials are looking at when to cut the statement and emphasizing that what they do is more important than changes to their wording.
In minutes from its Sept. 16 meeting, the Fed said policy-makers thought dropping the phrase then "might suggest the members' views on the economy had changed markedly."
While factory, mine and utility capacity in use climbed in October, according to a report from the Fed on Friday, use rates are still well below the 82 percent threshold economists consider heralds an inflation pick-up.
Capacity use has not been that high since the third quarter of 2000 and the rate only began rising again in July. In October, firms operated at 75.0 percent of capacity, the highest since February.
Nonetheless, several of the five Fed officials who spoke on Friday were clearly more upbeat about the economy. And Fed Governor Ben Bernanke may offer more clues about the future in an address scheduled later on Friday in Washington.
St. Louis Fed President William Poole said in Tucson, Arizona, that recent data suggest the long-awaited acceleration in the economic recovery was "under way" and faster growth was fueling job creation "after many months of stagnation."
In addition, he pronounced the inflation environment "benign," even while saying an already small risk of deflation, or persistent declines in the overall level of consumer prices, had receded since Spring.
And Fed Governor Edward Gramlich said in Washington he was more confident the better economic climate would stick around.
"We had a very strong quarter in the third quarter and employment has finally started to pick up after a very long lag. So, sure I'm confident now," he said in response to media questions after addressing a meeting on rental housing.
The improving job market also implied a diminishing risk of an unwelcome inflation fall, Gramlich said.
"People have various views of inflation but (for) those who think it depends essentially on unemployment, unemployment has moved down so there's a little bit lower risk (that) inflation rates will (drop)," he said.
Fed Chairman Alan Greenspan (news - web sites) shed little light on his views in his Friday turn at the podium.
He merely told the Fed-ECB monetary policy forum that uncertainty has become the defining characteristic of modern economies, which means policy-makers must meet regularly.
"Uncertainty is not just an important feature of the monetary policy environment, it is the defining characteristic," Greenspan said. |
