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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: Lucretius who wrote (72011)	10/27/1999 7:23:00 AM
From: MythMan	Read Replies (1) \| Respond to of 86076

Fed Comments Seen Signaling Nov. Rate Hike By Marjorie Olster Oct 27 2:35am ET NEW YORK (Reuters) - Several regional Federal Reserve presidents warned Tuesday they see a rising risk of U.S. inflation, and financial markets took their comments as a signal the Fed is likely to raise interest rates next month. ``With the pickup in demand from abroad combined with continuing strong domestic demand, we face the risk of building inflationary pressures,' San Francisco Fed President Robert Parry said in a speech in Ellensburg, Wa. He was one of four Fed presidents who spoke before separate audiences around the country. Fed policy makers on the Federal Open Market Committee (FOMC) meet next on Nov. 16. Stock and bond markets have sold off in recent weeks in anticipation of another rate hike. The Fed has raised interest rates twice so far this year. While there has been little actual inflation so far, the central bank cited the threat of inflation from strong consumer and business spending at home, very tight labor markets and a nascent recovery in the global economy. The FOMC left rates steady at its last meeting on Oct. 5 but adopted a bias toward tighter monetary policy, dropping its earlier neutral stance and signaling an intention to raise rates if inflation pressures surfaced. WHAT COMES DOWN MUST GO UP Parry said inflation over the last few years had been 'remarkably low' due in part to factors such as last year's global financial crisis which saw the dollar strengthen and commodity prices fall. Those factors, he noted, are ``beginning to reverse themselves somewhat'. Parry, considered a moderate on the dovish-to-hawkish spectrum of monetary policy-makers, is not a voting member of the FOMC this year. But he will vote in the year 2000. I CAN'T DRIVE 55 Richmond Fed President Alfred Broaddus issued one of the day's strongest warnings, saying ``current growth and demand is not sustainable'. But economists said Broaddus was traditionally hawkish and they were more impressed by Parry's warning of growing price pressures. ``I think that the consistent story coming out from everyone is they accept the 'New Paradigm' economy but even the new paradigm economy has inflationary growth limits,' Lehman Brothers economist Ethan Harris said, referring to the idea that technology and other factors have boosted productivity, allowing the economy to grow faster without inflation. ``The speed limit is now 65 not 55 but still get a ticket if you go too fast,' Harris said. ``They are all saying you can't grow above 4.0 percent without running into trouble.' St. Louis Fed President William Poole referred to such limits when he said that despite the fine performance in recent years, ``we must not allow ourselves to be lulled into wishful thinking about productivity and economic growth'. He later said he sees no imminent threat of inflation but the central bank remains vigilant. Minneapolis Fed President Gary Stern, the only voting FOMC member who spoke, said the Fed is close to its goals of maximum employment with stable growth but cannot be complacent. INFLATION REARED ITS UGLY HEAD IN SEPTEMBER A 1.1 percent surge in the September Producer Price Index (PPI), reported earlier this month, sent shudders through inflation-wary financial markets. ``Nothing catalyzes the Fed more than inflation numbers,' former Fed economist James Annable said. But he added the more important Consumer Price Index (CPI) was milder, up 0.4 percent in September. ``The pact around the New Economy is they won't ignore bad inflation numbers,' said Annable, who is now director of economics at Bank One Corp. TIGHT U.S. JOBS MARKET -- TOO MUCH OF A GOOD THING Annable and others said the Fed is worried about wage inflation from tight labor markets and would be alarmed if the unemployment rate fell below its 29-year low of 4.2 percent. Broaddus highlighted the concern over continued robust pace of domestic demand against a backdrop of rising inflation. So economists will scrutinize two important economic reports due Thursday -- the initial estimate of third-quarter U.S. gross domestic product and the quarterly Employment Cost Index, a comprehensive measure of labor costs. Another reason to expect a rate hike, Annable said, is that Fed Chairman Alan Greenspan wants to keep a lid on financial markets, fearing strong stocks prices are driving consumers to spend more.