Tornato ora
Reuters
UPDATE - Fed will be flexible, oil hits growth, Guynn says
Wednesday August 25, 12:58 pm ET
(Adds more Guynn comments, background)
ATLANTA, Aug 25 (Reuters) - A recent soft spot in U.S. growth ought prove temporary and should not alter the Federal Reserve's plan to continue raising interest rates in a measured way, one of it's top policy-makers said on Wednesday.
But Jack Guynn, president of the Federal Reserve Bank of Atlanta, told a lunch meeting that record high oil prices were one of the reasons the economy had hesitated and the Fed would react with flexibility to shocks in both prices and output.
"The data and anecdotal reports we have at this time continue to suggest we can work our way toward a more neutral interest rate setting in a "measured" way," he told the TAPPI Decorative and Industrial Laminates Symposium.
Guynn stressed the Fed was not raising rates because it felt the economy was growing too fast, but rather because with interest rates so low, an accommodative policy was not appropriate amid a widening economic expansion.
The Fed has raised rates by a quarter percentage point at each of its last two policy meetings to 1.5 percent, but since then, the country's growth has unexpectedly slowed and led some analysts to ask whether the Fed would take a break from tightening.
U.S. gross domestic product growth slowed in the second quarter to 3.0 percent from 4.5 percent in the previous three months after a sharp slowdown in consumer spending, believed to partially caused by a jump in gasoline prices. This has raised fears for the third quarter after oil prices powered to record highs just below $50 per barrel.
"In light of recent reports, I would concede that it's fair to question what's ahead. You might ask if the economy is getting bogged down for an extended stretch of eroding growth. Or are we just going through another brief soft patch on our way to sustainable recovery?" Guynn said.
But his view was that businesses and consumers had been alarmed by the rising oil prices, as well as factors like unease at the risk of terror attacks, and even decisions to stay home and watch the Olympics rather than go out shopping.
As a result, Guynn felt the pause would prove fleeting and the "likelihood of solid and sustainable growth looks good". But he stressed the Fed was not ignoring events.
"It's important to keep in mind that we can all be surprised by output and price developments as they unfold, and as our June and August statements noted, the FOMC (Federal Open Market Committee) has the flexibility and 'will respond to changes in economic prospects as needed'".
He also acknowledged that recent inflation numbers signaled that price pressures may be starting to ease after inflation ran up sharply earlier in the year. But Guynn stressed he was not yet satisfied the inflation danger had past.
"I continue to be struck by the extent of cost pass-through. In fields where demand is strong and growing, we are seeing price increases beginning to stick," he said.
