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Inflation worries premature
SOUTH BEND, Indiana: Chicago Federal Reserve President Michael Moskow said on Tuesday analysts' worries that inflation is on the rise are premature even though the US economy has been growing rapidly.
The economy grew at an annualized pace of 6.1 per cent over the second half of 2003, but inflation is low because the labour market is still weak and factories are running below capacity.
"The rapid pace of (gross domestic product) growth has even led some analysts to raise concerns about increasing inflation... I think such concerns are premature," Moskow told a Chamber of Commerce lunch in South Bend, Indiana. "We expect inflation to remain low," he said.
In the first remarks from a Fed official since the central bank last week unexpectedly dropped its promise to keep interest rates low for a "considerable period," Moskow signaled no urgent need to hike rates to fend off inflation.
Investors were shaken by the change in the Federal Reserve's wording about low interest rates and interpreted the shift as the first hint of a rate rise in coming months.
Speaking to reporters, Moskow declined to comment on the changes to the Fed's statement, or on whether financial markets had overreacted.
The Fed official stressed he did not see a pick-up in inflation, which would trigger a monetary policy response. "Even though growth in the second half was exceptionally strong, we have yet to see the kinds of pressure on labor and capital resources that often signal an increase in inflation," Moskow said in the speech.
He cited the relatively high unemployment rate, which stood at 5.7 per cent in December, and factories running below capacity.
Indeed, Moskow, a non-voting member of the Fed's policy committee this year, said the most recent data showed inflation is "extremely low."
A key reading of inflation released on Monday showed a rise of only 0.7 per cent in the year to December, the lowest on record.
(China Daily 02/05/2004 page12)
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