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Strategies & Market Trends : The Thread Formerly Known as No Rest For The Wicked -- Ignore unavailable to you. Want to Upgrade?

To: steve susko who wrote (62891)	9/27/1999 3:54:00 PM
From: kathyh	Read Replies (4) \| Respond to of 90042

inflation dangers?? Panel of U.S. economists urges Fed to raise rates Reuters Story - September 27, 1999 15:50 By Caren Bohan WASHINGTON, Sept 27 (Reuters) - A panel of private U.S. economists on Monday urged the Federal Reserve to raise interest rates, saying that the robust domestic economy and recoveries overseas posed inflation dangers. The Shadow Open Market Committee, a group of academic and financial-market economists known for their strong anti-inflation views, said the Fed has been dwelling too much on a debate about productivity gains and risks falling behind in the battle against inflation. "They ought to get about their business and stop making excuses as to whether productivity is higher or lower," said Allan Meltzer, a professor at Carnegie Mellon University who is chairman of the shadow committee. The productivity debate has figured prominently in the Fed's discussions of interest rates because many economists believe that a recent pickup in productivity growth, which measures the efficiency of the work force, has made the economy less prone to inflation. But Meltzer contended that even if productivity has improved, the pickup is not strong enough to head off inflation with the economy growing as rapidly as it is. The Fed's next meeting is on Oct. 5. Although the shadow committee would like to see the Fed raise rates, Meltzer acknowledged that he has not perceived any indications in the public remarks of policymakers to indicate they are gearing up for a near-term rate rise. The shadow committee emphasizes the "monetarist" view of the economy and inflation, which looks at trends in the money supply to predict inflation. Although the Fed experimented with monetarism in the 1980s, it now puts little emphasis on official money supply figures, which have an uneven track record on predicting economic growth because of changes in the financial system that skew their meaning. Shadow Committee member Mickey Levy, chief economist at Bank of America Corp., said rapid money growth is a chief reason the Fed should boost interest rates. He also said that commodity prices, which fell in recent years amid overseas economic turmoil, were set to rebound because of improvement in key areas such as Asia and that could push up U.S. inflation. "The world is changing and that is why it is incumbent on the Fed to reduce the money supply," Levy said. The shadow group had some additional advice for the Fed. It suggested dumping the "policy bias," which the central bank uses to signal the most likely direction of future interest-rate moves. The Fed has used the tool for many years but in June it began, for the first time, disclosing what the bias was immediately after policy-setting meetings. Previously, the bias had been kept secret for six weeks following meetings. The shadow committee economists said the bias served no other purpose than as a bargaining tool to garner consensus among Fed policymakers for interest-rate decisions. The economists also said it sent confusing signals to financial markets because many times when the Fed adopts a formal bias to tighten or to ease rates, it does not follow through with action. Copyright 1999 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or