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Strategies & Market Trends : Sharck Soup -- Ignore unavailable to you. Want to Upgrade?

To: Sharck who wrote (26330)	6/6/2001 3:30:07 PM
From: Dr. Voodoo	Read Replies (1) \| Respond to of 37746

biz.yahoo.com Fed's Meyer: Don't Raise Inflation Risk By Jonathan Nicholson WASHINGTON (Reuters) - Federal Reserve Governor Laurence Meyer on Wednesday warned again that the U.S. central bank must not lower interest rates so aggressively that it rekindles inflation risks. ADVERTISEMENT ``We have to be concerned that as we ease to mitigate the risks of a persistent slowdown or recession, we do not at the same time create conditions that would lead to higher inflation as the expansion gathers momentum,'' Meyer said in prepared remarks to be delivered to a gathering of economists in New York City. Meyer's warning echoed a similar one he gave in a speech on May 24, but he appeared to temper his remarks by noting the economy has yet to accelerate from the sluggish performance seen in the first quarter of the year. Many analysts had taken the May speech as a signal the Fed may be nearing the end of its rate-cutting campaign, which has seen short-term interest rates lowered by two-and-a-half percentage points since January. But while Meyer described consensus forecasts of an uptick in growth in the second half of the year as ``reasonable,'' he also said: ``There are no signs yet that the economy is strengthening relative to its first quarter performance and growth is likely to remain sluggish into the third quarter.'' The economy grew at an annual rate of 1.3 percent in the first quarter, up from its 1.0 percent pace in the fourth quarter of 2000. While in positive territory, those rates are considered well below the economy's potential for growth. Also, given the relatively low levels of inflation seen in the economy when the slowdown began, Meyer said the need for further drops in inflation was ``not as great'' as in the past. PAST RATE EASES TO KICK IN Meyer said the key to how quickly the economy recovers lies in two factors: how quickly the excess production capacity in the high-tech sector is absorbed and how much time it takes for investment spending to revive. Household spending, he said, will likely be restrained by a negative ``wealth effect'' -- consumers spending less because they feel less well off as their stock holdings have diminished in value. ``The other related key will be the degree to which declines in consumer confidence, perhaps under the influence of a softer labor market, undermine consumer spending,'' he said. But the rate easings the central bank has already put in place should help the economy, Meyer said, with their stimulative effects beginning to mount in the second half of the year and to build in 2002. PROSPECTS FOR ``NEW ECONOMY'' In his remarks, Meyer also mulled the prospects for the ''new economy,'' which he defined as a dramatic increase in productivity linked with innovations in information technology. While he said the United States is in such a period, he also said the ``new economy'' suffers from ``an old economy disease -- if not a full-fledged recession, at least a close relative, a growth recession'' in which activity slows while remaining positive but joblessness rises. ``There is no guarantee that a higher-growth economy is less vulnerable to recessions,'' he said.