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To: Les H who wrote (49341)	5/4/2000 9:53:00 AM
From: Les H	Read Replies (2) \| Respond to of 99985

FED SOURCES:INFLATION MAY BE MORE EMBEDDED THAN ECONOMIC STATISTICS SHOW 21:48 EDT 05/03 --More Aggressive Tightening Not Ruled Out By Steven K. Beckner bondsonline.com CHICAGO (MktNews) - Recent statistical and anecdotal reports of increased wage-price pressures are not a fluke and in fact may disguise the true extent to which inflation has become embedded in the economy, worried Fed officials say. Although productivity growth remains strong officials are increasingly concerned that labor compensation is beginning to catch up with productivity growth, leading to less favorable unit labor costs. It came as no surprise to the Fed that its latest beige book survey disclosed both "intensified" wage pressures and more frequent reports of price increases. The survey findings were seen as confirming previous statistical data such as the 1.4% first quarter increase in the Employment Cost Index and the 0.4% March rise in both the Consumer Price Index and average hourly earnings. But Fed sources pointed out there had been anecdotal indications of wage-price pressures that preceded those statistical reports. "We've been getting consistent reports" of accelerating inflation -- not just on the wage side but also on the price side -- one official said. A common, though not universally held Fed view, is that wages are a lagging indicator of inflation. If true, and many officials believe that it is, this means that underlying inflation may be further along than the data suggest, sources say. The Fed staff has long projected that above-trend growth and tight labor markets would eventually lead to an uptick in inflation, and the latest statistical and anecdotal information "just validates those forecasts," an official said. The Fed has been hoping that its incremental monetary tightening strategy, which has thus far involved 125 basis points of tightening in five steps, would slow the economy in time to prevent an outbreak of inflation. But recent numbers on both growth and inflation have begun to sway the Fed into thinking that its gradualist approach to raising the federal funds rate has been inadequate. The Fed has not ruled out either more aggressive action at scheduled Federal Open Market Committee meetings or more frequent moves via intermeeting rate hikes. Fed Chairman Alan Greenspan is scheduled to address a Fed conference Thursday morning. His announced topic is "banking evolution," but it is conceivable he could diverge from that topic. A year ago at the same conference Greenspan hinted at the series of rate hikes that began June 30, 1999.