China Daily  
Top News   
Home News   
Business   
Opinion   
Feature   
Sports   
World News   
HK Edition
Business Weekly
Beijing Weekend
Supplement
Shanghai Star  
21Century  
 

   
World Business ... ...
Advertisement
    Fed shows flexibility relating to policies
Vivien Lou Chen
2004-06-15 06:45

The Federal Reserve does not make "once-and-for-all decisions" and is capable of altering its policy if it is too aggressive or not aggressive enough, said Gary Stern, president of the Fed Bank of Minneapolis.

"We don't have to get it precisely correct for the economy to perform well we have to avoid large errors," Stern, the longest-serving member of the Fed's rate-setting Open Market Committee, said in Minneapolis.

Fed officials led by Chairman Alan Greenspan have signalled for more than a week they are ready to lift their benchmark interest rate, and perhaps faster than investors have been predicting if inflation exceeds forecasts.

The addition of 1.2 million jobs this year has investors and economists doubting whether the Fed can keep its May 4 pledge to raise rates at a "measured" pace without risking higher inflation.

The government is scheduled to release a key inflation report on consumer prices today, the last before the Fed meets June 29 and 30 to set the benchmark rate. The Fed has held the target rate for overnight loans between banks at 1 per cent, the lowest since 1958, for the past year.

Investors' speculation that the Fed may move faster than they had been betting helped push the US dollar last week to its best performance against its 12-nation European counterpart since the five days ended January 16. The dollar was at US$1.1959 per euro at 10:32 am in Tokyo yesterday, from US$1.2010 late Friday in New York.

When asked whether the Fed is behind on inflation and can maintain a "measured" pace on rates, Stern said: "We don't make once and for all decisions. If we're being too aggressive or not aggressive enough, we can change."

Stern has been on the FOMC since 1985 and is a non-voting member this year.

A majority of economists at Wall Street's largest bond-trading firms surveyed by Bloomberg News said last week that they expect the central bank will at least double the federal funds rate by year's end.

Greenspan told an international monetary panel in London on Tuesday that the Fed's "measured" paced commitment is conditional and can be revoked if the central bank's judgments "prove misplaced."

Federal Reserve Bank Presidents Jack Guynn of Atlanta and Sandra Pianalto of Cleveland reiterated Greenspan's view during separate public appearances on Friday. William Poole, president of the St. Louis Federal Reserve Bank, told Reuters on Thursday "it would be appropriate" for the committee "to move further and faster" if significant evidence of inflation emerges.

The consumer price index rose at a 4.4 per cent annual rate for the four months that ended in April, compared with a 3 per cent increase at the same time last year.

(China Daily 06/15/2004 page12)