Does The Federal Reserve See Inflation In The Future?
SUSIE GHARIB: You know, Paul, talk to enough economists and you begin to hear the same concern. The U.S. economy is growing too fast and inflation could be a problem. Does the Federal Reserve share those concerns? Well, here's what Fed Vice Chair, Alice Rivlin told our Washington bureau chief, Darren Gersh.
DARREN GERSH, NIGHTLY BUSINESS REPORT, CORRESPONDENT: Dr. Rivlin, when we spoke to you about a year ago, you said that the U.S. economy was growing quickly. And it was a close call as to whether it was growing too quickly and the Fed might need to step in to prevent a burst of inflation from breaking out. It's a year later, and the economy grew 4.8 percent in the first quarter. So, is it still a close call?
ALICE RIVLIN, VICE CHAIR, FEDERAL RESERVE BOARD: I think all of that is still true. What's changed in the last year is that we have the Asian crisis which clearly is slowing down the U.S. economy. The question is, how much. And we really don't know. I think a few months ago, people thought, perhaps the worst was over in Asia. We all still hope so. But it's a little less clear than it was.
GERSH: Many people have been predicting for a long time that the economy is going to slow. And it hasn't, so far. So, how confident are you in the forecast that the economy is going to slow?
RIVLIN: With respect to the Asian situation, we have certainly seen a drag on the U.S. economy. Exports are down to Asia which is what you would expect. And imports are up. We'll certainly get more of that, and that, other things being equal, slows down the U.S. economy. But it's a big question whether it will slow it down very much. And what else will happen?
GERSH: Are we in a position where we can't wait very long to see the economy start to slow, or do we have a little bit of time?
RIVLIN: Well, I think what we've learned about the U.S. economy in the last couple of years is that it is not as inflation prone as it use to be. And that's partly because we haven't had much inflation. And inflation expectations are low. But also, apparently, the economy is really functioning in a way that makes it less likely that prices will just take off. We have not seen that, and it doesn't seem likely that we will.
So, perhaps there's more time. The image of inflation is sort of something that's about to spring out at us. Is more like, is much less likely than we use to think.
GERSH: Well, I'm sure you won't be surprised to learn that I found a few economists who are concerned. And one I spoke to said that if you take a look at inflation over the last 12 months ending in April, that it was going up about, the core rate was going up about a little over 2 percent. But if you look at the 3 months of that period ending in April, it went up 2.8 percent. He says that's evidence that inflation is accelerating. Is inflation accelerating, and is it enough to prompt the Fed into action?
RIVLIN: Well, I think it's basically hard to tell. There are some things that have exerted some upward pressure on consumer prices. Tobacco and some other things that are probably not very permanent. But, it's worth watching.
GERSH: What about this argument that some of these factors are temporary that have been helping the inflation front. The, you know, we have the strong dollar that could reverse. Oil prices aren't going to go much lower. In fact, they might creep up. And consumers are getting ahead of themselves.
RIVLIN: Well, that's all true and the other factor that's often mentioned as temporary is the slow growth of health costs benefits. And that may well reverse and begin moving up more rapidly. So, there are plenty of things to watch, and the Fed is watching. But, up to now, we haven't seen a definitive acceleration in inflation.
GERSH: But you don't think this economy is too strong, right now?
RIVLIN: That depends by what you mean by, "right now." Certainly, the last complete quarter that we had, the first quarter, was unsustainably rapid. Nobody thinks that the economy can go on growing at 4.8 percent. A lot of that was inventories, but not all. And, so, the question is, is the second quarter slowing down? It's not definitively doing so, or not that much. And what will happen in the third?
GERSH: The Economists magazine has talked about a bubble economy, that the stock market is too high. Or in merger mania, prices and real estate going up. We've got a bubble and it's unsustainable. What do you think of the bubble argument?
RIVLIN: Well, it's hard to know a bubble until, until it's burst. But, clearly, stock prices have been very high. I've said lots of times over the last year or so that you have to be a real optimist about earnings to justify these values. But it's not clear that we have a tulip mania or anything like that. And, other kinds of prices, real estate and so forth, have been moving up in some places. I mean, Manhattan real estate, for instance. But it doesn't seem to be a general national asset price inflation.
GERSH: Dr. Rivlin, thank you very much.
RIVLIN: Thank you.
Nightly Business Report transcripts are available on-line post-broadcast. The program is transcribed by FDCH. Updates may be posted at a later date.
The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc. Nightly Business Report, or WPBT.
Information presented on Nightly Business Report is not and should not be considered as investment advice.
(c)1998 Community Television Foundation of South Florida, Inc.
quote.com |
