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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (41067)	9/7/2005 2:59:36 PM
From: ild	Read Replies (1) \| Respond to of 110194

DJ Fed's Moskow: Won't Speculate On What FOMC Will Do DJ Moskow: FOMC Will Let Data Drive Rate Policy Decision DJ Fed Moskow: Aware Of Congestion In Distribution Systems DJ Fed Moskow: Looking To All Supply, Demand-Side Data =DJ Fed's Moskow:Won't Speculate On What FOMC Will Do In Sep By Stephen Wisnefski Of DOW JONES NEWSWIRES CHICAGO (Dow Jones)--Federal Reserve Bank of Chicago President Michael Moskow refused to be drawn Wednesday on what decision the central bank will make on interest rate policy at its upcoming meeting on Sept. 20, noting that it will depend on the direction of economic data. "We'll follow the same process we follow at every meeting," said Moskow, currently a voter on the policy-making Federal Open Market Committee. He said he "won't speculate" on the decision. Moskow said the committee will gather data from various sources, assess impact on the economy, review the current state of monetary policy and then do what's best for the American people. He was taking questions from the audience after delivering a speech at a luncheon sponsored by the Futures Industry Association. In that speech, he said it's too soon to gauge the fallout on the national economy from Hurricane Katrina. "We are going to face a number of judgment calls in trying to assess the impact of Hurricane Katrina on the national economy," said Moskow, who is currently a voter on the policy-setting Federal Open Market Committee. "Clearly this is a horrible disaster in terms of lost lives and property destruction," he said. "And it's a big loss to the local economies. But at this time it's very difficult to say how the national economy will be affected." The Federal Reserve has raised interest rates at 10 consecutive policy meetings since June 2004, bringing its key overnight rate to 3.50%. Economists had expected at least two more quarter-point hikes before the end of the year, but Katrina-related developments have caused some Wall Street banks to consider a pause in this tightening cycle to evaluate the impact of the storm. =DJ Fed's Moskow: Won't Speculate On What FOMC Will Do -2- Asked during a question and answer session with reporters about the specific impact of Katrina, especially for the agricultural products that are critical to the Midwest regional economy, Moskow said, "We've heard that there is some congestion in the distribution system." That has forced market participants to find alternate routes for those products, he noted, without providing specific anecdotal information. Moskow said the Fed would look to all data in evaluating the state of the economy, including the forces influencing both supply and demand. Economists have worried about a potential supply shock to the economy in the wake of Hurricane Katrina that could lead to a sustained move higher in the cost of energy. The Fed can't influence such supply factors as oil, and primarily can influence demand in the economy. During his speech, Moskow stressed that energy futures contracts indicated that market participants expect any fuel price hike resulting from Katrina to be temporary. He said he was hopeful that the market's interpretation is correct, and that the storm's impact on fuel prices wouldn't pose a big inflation risk. Asked what he made of the fact that interest rate futures indicate that the Fed will ease up on its monetary tightening push at some point, Moskow reiterated that the Fed monitors significant volumes of economic data, as well as market indicators. The Fed's Beige Book, a summary of economic activity prepared for use at the central bank's next Federal Open Market Committee meeting, was published Wednesday and showed the economy kept growing from mid-July through August in 11 of 12 regions. The survey was compiled before Hurricane Katrina hit however, so provides little additional insight. In comments that were seen by some economists as indicating his preference to raise interest rates again on Sept. 20, Moskow said in his speech that a string of higher inflation numbers may cause people to permanently expect higher inflation, which could become self-fulfilling if it becomes built into the behavior of households and businesses. "And this would have adverse effects on longer term economic performance. If this occurred, the Fed would need to respond accordingly in order to restore price stability," Moskow said. "Even without an increase in inflation expectations, it will take appropriate monetary policy to keep inflation well contained," he added. Moskow was speaking after the government reported U.S. worker productivity moderated last spring even more than previously thought. Productivity in the nonfarm business sector grew at a seasonally adjusted annual rate of 1.8% in the second quarter, down from the previous estimate of 2.2%. Asked if he was worried about this trend, Moskow said: "You would expect productivity growth to change from quarter to quarter," he said. "I still believe that trend productivity growth is in the vicinity of 2.5% (per year),", he added, noting that it is significantly higher than it was in the 25 years leading up to the mid-1990s.