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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (51531)	5/16/2002 12:22:40 PM
From: Sully-	Read Replies (1) \| Respond to of 65232

Reuters Business Report Fed's Moskow: Much Uncertainty on Recovery By Melissa Goldfine CHICAGO (Reuters) - Chicago Federal Reserve President Michael Moskow said on Thursday the U.S. recovery remains uncertain while higher oil prices pinch businesses and consumers, signaling the central bank is in no hurry to push up interest rates from four-decade lows. But Moskow, who currently does not vote on the Fed's policy-setting committee, said job growth should underpin consumer spending for the rest of the year and business investment seems to be picking up, factors the Fed views as crucial for the recovery. "We appear to be on our way to a moderate expansion," Moskow said at the WLS Radio/Wall Street Journal Business Breakfast here. "Still, we are facing a good deal of uncertainty over how the early stages of this expansion will unfold." Moskow said rising oil prices, which have jumped $8 a barrel since December, "acts like a tax on the imported oil used by the economy, sapping consumer purchasing power and reducing business margins." The current Mideast political situation adds to uncertainty on the outlook for oil prices. Moskow said the Chicago Fed expected economic growth to expand over the next few quarters close to the economy's potential long-term rate, which many analysts estimate at 3 percent to 3.5 percent. Moskow's comments reiterated the cautious stance of many Fed officials and suggested the central bank remains reluctant to hike interest rates until it sees more evidence of a robust economic recovery. Recent U.S. data have been mixed, adding to worries the recovery could falter. But Moskow said he was confident that would not happen, even if the recovery was likely to be bumpy in coming months. Earlier on Thursday, the government said housing starts fell 5.4 percent in April, much more than economists had forecast. But Moskow said he did not see housing activity "having a significant slowdown on a national basis going forward." Most Wall Street economists believe the Fed will wait until August at the earliest before raising interest rates. BUSINESS SPENDING THE KEY Some signs of improvement in business investment have emerged, and even the battered technology sector appears to be stabilizing, Moskow said. Stronger business investment is necessary to support the recovery, he said, but so far, firms have been reluctant to make new investments or hire permanent employees. But the increased demand for temporary employees and rising amount of overtime hours worked "may be indicative of good news to come on the hiring front" and could mean that consumer spending will keep powering the economy through its recovery. "I expect employment growth will continue for the rest of this year," Moskow said. The government reported that the economy added jobs in April for the first time since last July. The Fed's current policy of keeping interest rates at a four-decade low of 1.75 percent is accommodative, Moskow said, while noting that the central bank cannot maintain such a policy "forever" without risking a flare-up in inflation. But inflation is well-contained and gives the central bank "more room to react to a slow recovery, should it unfold," he said. Moskow said the Fed faced challenges in trying to decide when to shift policy toward raising interest rates. One was to gauge the staying power of final demand, he said, and balancing that demand with the economy's ability to grow without inflation. Another challenge is "the fact that changes in monetary policy affect the economy with a lag," he said. biz.yahoo.com