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Fed's Moskow says inflation still biggest concern
Thu Nov 16, 2006 10:00am
By Ros Krasny
CHICAGO, Nov 16 (Reuters) - Chicago Federal Reserve President Michael Moskow said on Thursday high inflation is the "dominant concern" for the Fed, and repeated the possible need for more interest rate increases.
"My current assessment is that the risk of inflation remaining too high is greater than the risk of growth being too low," Moskow said in comments to prepared for a speech to an American Business Media meeting.
Moskow's noted that the focus on inflation risks was reflected in the minutes of the October Federal Open Market Committee meeting, released on Wednesday.
"All (FOMC) members agreed that inflation risks remained the dominant concern," said Moskow, who will be a voting member of the policy-setting committee in 2007.
The Fed has held benchmark interest rates steady at 5.25 percent for its past three meetings after pushing rates up relentlessly for two years. Financial markets expect the on-hold policy to continue through at least January.
"By my standards, inflation has been too high," Moskow said, noting that his preferred range on the core personal consumption expenditures (PCE) price index is 1 percent to 2 percent. In September, the index was up 2.4 percent from a year earlier.
Inflation should ease somewhat "over time," helped by lower energy prices and below-trend growth, but there is still a risk that core inflation could run above 2 percent for some time, he said.
On Thursday, the Labor Department reported that the core consumer price index for October rose 2.7 percent on the year, down from 2.9 percent in September.
Inflation expectations -- market assessments of where prices may be headed -- have been contained, but if they were to increase "it would be incumbent on the Federal Reserve to adjust policy to affirm our commitment to price stability," said Moskow.
U.S. economic growth is likely to run slightly below trend of an annualized 3 percent for the next year or so, reducing price pressures from "resource constraints" including a tight labor market, he said.
At the same time, Moskow said underlying productivity trends "remain quite solid" even though third-quarter productivity growth was unexpectedly flat, leading to concerns that wage inflation could accelerate.
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The Chicago Fed expects some further weakness in residential construction, Moskow said.
However, in keeping with most Fed officials, and with Wednesday's FOMC minutes, Moskow did not see the slowing housing market creating prolonged weakness in the overall economy. "The 95 percent of the economy outside of housing remains on good footing," he said.
Jobs growth is solid, especially against the backdrop of slower expansion in the labor force, and recent declines in oil prices should boost household budgets, Moskow said.
Thu Nov 16, 2006 10:00am
By Ros Krasny
CHICAGO, Nov 16 (Reuters) - Chicago Federal Reserve President Michael Moskow said on Thursday high inflation is the "dominant concern" for the Fed, and repeated the possible need for more interest rate increases.
"My current assessment is that the risk of inflation remaining too high is greater than the risk of growth being too low," Moskow said in comments to prepared for a speech to an American Business Media meeting.
Moskow's noted that the focus on inflation risks was reflected in the minutes of the October Federal Open Market Committee meeting, released on Wednesday.
"All (FOMC) members agreed that inflation risks remained the dominant concern," said Moskow, who will be a voting member of the policy-setting committee in 2007.
The Fed has held benchmark interest rates steady at 5.25 percent for its past three meetings after pushing rates up relentlessly for two years. Financial markets expect the on-hold policy to continue through at least January.
"By my standards, inflation has been too high," Moskow said, noting that his preferred range on the core personal consumption expenditures (PCE) price index is 1 percent to 2 percent. In September, the index was up 2.4 percent from a year earlier.
Inflation should ease somewhat "over time," helped by lower energy prices and below-trend growth, but there is still a risk that core inflation could run above 2 percent for some time, he said.
On Thursday, the Labor Department reported that the core consumer price index for October rose 2.7 percent on the year, down from 2.9 percent in September.
Inflation expectations -- market assessments of where prices may be headed -- have been contained, but if they were to increase "it would be incumbent on the Federal Reserve to adjust policy to affirm our commitment to price stability," said Moskow.
U.S. economic growth is likely to run slightly below trend of an annualized 3 percent for the next year or so, reducing price pressures from "resource constraints" including a tight labor market, he said.
At the same time, Moskow said underlying productivity trends "remain quite solid" even though third-quarter productivity growth was unexpectedly flat, leading to concerns that wage inflation could accelerate.
THE 21st CENTURY IN PICTURES
War and Conflict
View Slideshow
The Chicago Fed expects some further weakness in residential construction, Moskow said.
However, in keeping with most Fed officials, and with Wednesday's FOMC minutes, Moskow did not see the slowing housing market creating prolonged weakness in the overall economy. "The 95 percent of the economy outside of housing remains on good footing," he said.
Jobs growth is solid, especially against the backdrop of slower expansion in the labor force, and recent declines in oil prices should boost household budgets, Moskow said.
