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January 19, 2005
The Forecast For 2005: The Views From The Fed, Part III
The onslaught continues today with new speeches by Governor Ben Bernanke, and district bank presidents Timothy Geithner (New York), Sandra Pianalto (Cleveland), Anthony Santomero (Philadelphia), and Gary Stern (Minneapolis). (The Geithner and Santomero talks pick up on the themes noted in their other recent speeches.) Here's the short versions, from USA Today:
Federal Reserve officials said Tuesday that the economy has reached a point of sustained growth, with rising employment, requiring it to keep raising interest rates to stave off possible inflation.
In a series of speeches, Fed officials said inflation appears tame, but added that as the economy gains solid footing they will be vigilant in looking for price pressures or what Sandra Pianalto, president of the Federal Reserve Bank of Cleveland, called "the possibility of inflation creeping in"...
Pianalto said core inflation, which doesn't include food and energy, remains low and wages are contained. But she said the expanding economy should increase demand for credit, raising market-based interest rates. Large U.S. budget and trade deficits could pressure financial markets...
Anthony Santomero, president of the Federal Reserve Bank of Philadelphia, said the country was in a sustained expansion with tame inflation. He predicted growth of 3.5% to 4% in 2005 with job gains of 150,000 to 200,000 a month.
Santomero also said he expected not only growth in jobs, but greater expansion in higher-paying jobs, based on new research by the Philadelphia bank.
Gary Stern, president of the Federal Reserve Bank of Minneapolis, told a business group that, "I don't see factors that lead me to believe there will be an appreciable acceleration of (core) inflation in 2005."
And from Reuters:
Huge U.S. trade deficits are draining demand from the economy and pose a risk that could be tempered if America's trade partners grew more robustly, Federal Reserve Governor Ben Bernanke said on Wednesday...
"For our growth (this year) to be what we hope it will be, that is, above trend, maybe 3-1/2 percent or even better, we need for the trade balance to be no worse of a drag than it has been recently," Bernanke said, adding that made the global outlook "a major factor for the U.S. going forward."
He said there was "a reasonable expectation" that Europe and Japan will have "decent" economic performance this year, which would help if their consumers spent more.
"So our hope is that the trade balance will not worsen and become even more of a drag in 2005 than it was in 2004 and if that's the case, the prospects for reasonable growth are pretty good," Bernanke said.
Put it all together, and a pretty uniform opinion message emerges: Growth on the high end of moderate, inflation pressures contained, twin fiscal and current-account deficts that need to be watched, and don't be surprised if there are more federal funds hikes to come.
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