Fed's Guynn says more U.S. interest-rate hikes to come
Wednesday, May 25, 2005 5:10:34 PM
afxpress.com
Fed's Guynn says more U.S. interest-rate hikes to come WASHINGTON (AFX) -- Jack Guynn, president of the Federal Reserve Bank of Atlanta, sounds like the latest singer from the Fed choir to take his turn belting out the same refrain: the U.S. economy is stronger than it might appear, and inflation remains a worry
"I believe the economy remains on a solid and sustainable path of growth," Guynn said in a speech prepared for delivery Wednesday to the Certified Professional Home Builder Luncheon in Atlanta. A copy of his remarks was made available here
Businesses continue to "ramp up" their investment spending, and consumer spending "keeps chugging along," Guynn said. "Taken as a whole, these and other factors suggest that our economy has ample strength to withstand further removal of accommodative monetary policy -- in my view, a step that is needed to sustain economic growth," Guynn said
His remarks echo comments made on Tuesday by Michael Moskow, president of the Chicago Fed, as well as in the May 3 meeting minutes of the policy-setting Federal Open Market Committee. Guynn attributed some recent signs of a slowdown to "general skittishness about the springtime run-up in energy prices." Some businesses have postponed investment plans in light of the high cost of energy, but "there has been no sense of panic," Guynn said
Guynn also said he was sticking with his forecast calling for the nation's gross domestic product to grow in a range of 3.5% to 4% for 2005
Rising inflation Guynn said that inflation has been trending higher over the past two years
He noted rising prices for gypsum, scrap steel, and cement. There was more "pass through" of higher energy costs into consumer prices, he added
"My point is that all of the inflation measures over the past seven or eight quarters show a similar -- but distinct -- upward tilt," Guynn said
Guynn said he was also worried about reports of growing speculative activity in U.S. housing markets, where investors buy properties simply to "flip" them for a quick profit
"I have to tell you that some of these stories we're hearing about residential speculation make me uncomfortable," Guynn said
Uncertain time for policymakers Guynn said that Fed policymakers are facing more questions about the "end game" for the rate-hiking cycle. The Fed has raised its key federal funds target interest rate to 3% from 1% over the past year
"Going forward, we are approaching an increasingly uncertain time for monetary policy," Guynn said
The Fed's goal is to return rates to a so-called neutral level, where growth can continue without inflation running hotter "Given my current outlook for the economy, my personal view is that we've not yet reached a neutral policy stance," Guynn said
"While I see no sign of an imminent and substantial pickup in inflation, we will need to be especially sensitive to incoming data and new developments on prices," he said |
