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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Wally Mastroly who wrote (13894)	5/23/2000 5:50:00 PM
From: MrGreenJeans	Read Replies (1) \| Respond to of 15132

From the Financial Times of London Fed upbeat on US trends on inflation By Gerard Baker in Washington Published: May 23 2000 18:08GMT \| Last Updated: May 23 2000 19:31GMT Recent indications of rising cost pressures in the US economy do not represent firm evidence of a new trend of accelerating inflation, a leading member of the Federal Reserve's monetary policy-making open market committee said this week. Roger Ferguson, the vice chairman of the US central bank, said in an interview he supported last week's decision to raise interest rates by half a percentage point - a break with the gradualist approach of quarter-point increases in the last year - because it was right to be on "heightened alert" for inflationary signs in the economy. "It struck me that a 50 basis point move was prudent and did not over-react to the data," Mr Ferguson said. But the vice-chairman said he did not think inflation risks were any greater today than they had been three months ago. "I don't think the inflation risks are any less great. I think they are real, but I'm not sure that they are any greater than they were a few months ago. However, we have had another 75 basis points of tightening in the last few months, and we will have to see what impact that has." Mr Ferguson's remarks are the first detailed comments from a senior Fed official since the central bank's decision to raise rates last week. Broad equity markets indices have fallen by more than 5 per cent since the rate rise on growing fears that there might be several more rises to come over the summer. The economy has so far shown little sign of slowing from its frenetic pace of growth in the last year of around 6 per cent per year. But Mr Ferguson said the full impact of the Fed's 1.75 percentage point increase in short-term rates that began last June would take some time to be reflected in firm evidence of a slowdown. "Lags in monetary policy are long and variable. Given the fact that the first increase was not quite a year ago and came after a period in which rates had been cut three times, I'm not surprised that there isn't definitive evidence now of an impact," he said. The central bank's decision to raise rates more aggressively came after a string of economic reports in recent weeks suggested the rapid growth of the last few years might at last be starting to push prices higher. Consumer prices and wholesale prices both jumped in March, a factor many economists thought played a key role in the Fed's decision last week. But Mr Ferguson played down the significance of the consumer price index figure, saying the March figure was skewed somewhat by special factors, and was followed by more benign April figures. The main cause for concern continued to be the labour market, Mr Ferguson said. Unemployment dropped to a 30-year low of 3.9 per cent last month. The Fed vice chairman pointed to the low jobless rate, rising employment costs and growing participation in the labour force as evidence that demand growth in the economy continued to exceed supply capacity.