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Wednesday, October 19, 2005

Speeches by Fed Governor Kohn and Cleveland Fed President Pianalto (Update 2: Fisher and GeithnerToo)

I hope to do more on these later, but I thought I'd let you know about two more speeches from Federal Reserve officials adding to the chorus  of voices (e.g. here and here yesterday, here the day before) calling for a continuation of measured increases in the target value of the federal funds rate:

The Economic Outlook, by Fed Governor Donald L. Kohn ...In sum, I see risks on both sides of my expectations that the growth of economic activity will slow modestly on balance over the next year or so, leaving the economy producing at about its sustainable potential. But unless activity slows unexpectedly, and after the rise in retail energy prices, the risks may be skewed a little toward the upside on inflation. ... Obviously, we are considerably closer to where policy needs to be than we were sixteen months ago, but we are not yet at a point where we can stop and watch the economy evolve for a while. ... How far we go will depend on the evolution of economic activity and prices...

Economic Conditions and Monetary Policy, by Sandra Pianalto, President, Cleveland Fed ...Katrina and Rita did not change the broad contours of my forecast for continued economic growth and lower inflation into 2006. So, to me, the plan of continuing to remove the remaining amount of policy accommodation still looks like a sound one. We have already removed a substantial amount of that accommodation, and it is fair to ask how much further we might have to go. ... The answer ... depends on how economic conditions unfold.... Monetary policymaking requires managing risks. That means having a plan that is flexible enough to take into account sudden surprises and changing conditions. While I may be uncertain about which path the economy will take, ... Removing the remaining monetary policy accommodation puts us in the strongest possible position to react as evolving economic conditions require...

The message from the speeches is transparent - unless incoming data alter the picture substantially, rates will continue to rise.

Update: One more from Dallas Fed president Richard Fisher. He also discusses gobalization.  Given the recent discussion here on this topic (here and here), I hope to summarize his remarks later.

Globalization and Texas, by Richard Fisher, President, Dallas Fed: My recent soundings ... have caused my brow to furrow, reflecting concerns about the drag on growth by Hurricanes Katrina and Rita and the increases in energy prices. Several questions arise. How permanent are these influences? ... Will energy and associated costs work their way into core inflation? ... I must give an honest answer. ... I really don’t know... we must listen carefully to the anecdotal evidence... Price stability is a necessary condition for achieving maximum sustainable economic growth. Central bankers have always... recoiled from inflation. ... Here the Fed watchers who read entrails might take note: I am fully confident that the Fed will continue to do its part by containing inflationary expectations and pressures. ... You will note that the operative phrase ... was “inflation expectations.” A key to containing them is the conduct of the FOMC. For my part, as a member of the FOMC, I will not waver from advocating policy that discourages expectations of higher core inflation...

Update: There was yet another speech today, this one by Timothy Geithner, President of the New York Fed.  However, this talk did not address the future course of monetary policy.  Instead, the focus is on global imbalances and how they will be resolved. This would also be good to present more fully later:

U.S. and the Global Economy, by Timothy F. Geithner, President, New York Fed: For global growth to be sustained at a reasonably strong pace during this period of adjustment, the desirable increase in U.S. savings and the necessary slowing in U.S. domestic demand growth relative to growth of U.S. output would have to be complemented by stronger domestic demand growth outside the United States, absorbing a larger share of national savings. Exchange rate regimes, where they are currently closely tied to the dollar, will have to become more flexible, allowing exchange rates to adjust in response to changing fundamentals. The global nature of these requirements does not imply that the United States can put the principal burden for adjustment on others... the U.S. economy is in many ways in a relatively favorable position to manage through the risks in the adjustment process ahead. ... But we face a number of difficult long-term challenges as a nation—in our fiscal position, in how well we equip our citizens to prosper in a more competitive world and in our ability to sustain political support for the policies, including our relatively open trade policy, that have been an important source of the improvement in U.S. prosperity...

    Posted by on Wednesday, October 19, 2005 at 12:32 PM in Economics, Fed Speeches, Monetary Policy | Permalink  TrackBack (0)  Comments (1)


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