Alexa
  • Directory of Taiwan

Federal Reserve's Plosser: Current inflation cause for 'concern'

Federal Reserve's Plosser: Current inflation cause for 'concern'

The newly installed president of the Federal Reserve Bank of Philadelphia used his first major address on the U.S. economy Thursday to fret over inflation and to warn that the central bank may have to raise rates again.
The bank's president, Charles Plosser, said "there is some cause for concern" on the inflation front. "Despite recent hopeful news on the inflation front, the inflation outlook remains uncertain" and "there is a significant possibility that inflation rates will remain above those consistent with price stability for some time."
This has implications for monetary policy. "While the Fed must keep a careful eye on the pace of economic activity and be prepared to adjust its policy in either direction, the predominant risks _ and the attendant economic costs _ are on the inflation side," Plosser said.
"So we need to remain vigilant and recognize that maintaining the current stance of policy, or even firming further, may be in the best interests of the economy's long run performance," the central banker said.
Put another way, "if unacceptably high rates of inflation persist or public confidence in long-run price stability seems to diminish," Plosser said, "additional monetary policy tightening may be necessary."
Plosser's comments were in a text to be delivered before a luncheon of the Chartered Financial Analysts of Philadelphia. He is not currently a voting member of the interest-rate setting Federal Open Market Committee. That group meets later this month in a gathering most economists expect will result in steady monetary policy, with the bank's overnight target rate holding at 5.25 percent.
Plosser's suggestion that monetary policy may have to be tightened will be tough news for a bond market that has increasing priced in the chance the Fed will soon be cutting rates in response to a slowing economy. In a speech Wednesday Fed Vice Chairman Donald Kohn added a note of puzzlement over the bond market's current sentiment. Earlier that same day, Fed Chairman Ben Bernanke said he remains concerned about inflation, even as he expects it to trend lower over time.
Plosser's take on the economy was in line with other central bank officials. He said "economic growth has moderated as expected, from the rapid pace we saw in the first half of the year," adding "I expect growth to remain modest in the second half of the year and accelerate to trend in 2007."
Plosser noted that "given the strength in the housing market in recent years, the slowdown is not unexpected, nor is it in my view unwelcome."
He said "the housing sector is going through a painful, but necessary, adjustment and this has slowed overall growth somewhat of late.
"But the expansion is still on firm footing, and growth is likely to accelerate in 2007," Plosser added. He said that "outside of housing and autos, other sectors of the economy are performing well."
___
Michael S. Derby is a correspondent of Dow Jones Newswires


Updated : 2021-06-14 11:46 GMT+08:00