Fed's Poole Joins Greenspan in Signaling Higher Rates
quote.bloomberg.com
June 11 (Bloomberg) -- Federal Reserve Bank of St. Louis President William Poole joined Fed Chairman Alan Greenspan this week in signaling that central bank policy makers are ready to raise interest rates faster than investors expect should inflation accelerate more than forecast.
``It would be appropriate for the FOMC to move further and faster'' in that situation, Poole said in an interview with Reuters after the close of U.S. markets yesterday. St. Louis Fed Bank spokesman Joe Elstner confirmed the statements and said Poole was traveling and unavailable for additional comment.
The dollar rose and gold fell after Poole became the fourth Federal Open Market Committee member this week to say the central bank may raise rates at a faster pace to restrain inflation, if necessary.
Federal Reserve Bank of Atlanta President Jack Guynn said today the U.S. central bankers' statement that they may raise interest rates at a ``measured'' pace is ``more of a plan than a pledge'' and can change if inflation picks up.
``Not only is it important that we prevent appreciable price increases from taking hold, but it is vital that we maintain the Fed's credibility for following a policy path that keeps inflation in check over the long haul,'' Guynn said in the text of a speech to Atlanta real estate executives. In that regard, ``the word `measured' is more of a plan than a pledge.''
<MORE IN ARTICLE>
Excerpts:
``There is a very substantial amount of uncertainty about where we are going to go, and it is going to be important for the Federal Reserve to be prepared to respond to new information,'' Poole told Reuters.
``The Fed is preparing the market for the possibility of a faster pace of interest rate hikes should inflation rise more rapidly,'' said Yasutoshi Nagai, an economist at Daiwa Securities SMBC Co. in Tokyo. Daiwa's U.S. unit is one of 23 primary government securities dealers that trade with the Fed's New York branch. ``This is the time to sell bonds.''
``With the oil price surge, the federal deficit increasing and the booming economy, inflationary pressures are building quicker than anticipated,'' said David McClain, a vice president at the University of Hawaii and a former senior staff economist for President Jimmy Carter's Council of Economic Advisors. ``We saw this kind of inflation impulse with the oil price shocks of the 1970s, and it sounds like Poole is not willing to accommodate this inflation impulse.''
Fed Governor Donald Kohn said last Friday that the rise in inflation indicators ``likely reflects a rebound from unexplainably low inflation last year and the feed-through of increases in commodity, energy, and import prices.''
Kohn's remarks were followed on Tuesday by Greenspan, who said he expects international competition and productivity to restrain price increases. If that forecast is wrong, ``the FOMC is prepared to do what is required to fulfill our obligations to achieve the maintenance of price stability so as to ensure maximum sustainable economic growth,'' Greenspan said.
Poole's remarks ``leaves us with the impression more-than- expected rate increases are probably in store,'' said Satoshi Tate, vice president of derivatives and foreign exchange marketing at UFJ Bank Ltd., a unit of Japan's fourth-largest bank by assets. |
