Wednesday, June 14, 2006
Fed's Fisher-inflation discomforting, unacceptable
UPDATE 1-Fed's Fisher-inflation discomforting, unacceptable
Wed Jun 14, 2006 1:51pm ET
Updates with more Fisher remarks, background)
By Alister Bull
CORPUS CHRISTI, Texas, June 14 (Reuters) - Some measures of inflation show it running at levels that cause discomfort and are unacceptable, Federal Reserve Bank of Dallas President Richard Fisher said on Wednesday.
"We can ill afford to somehow encourage expectations that inflation might gain momentum. For in today's monetary realm, with markets so fluid and swift, expectations can quickly become reality," he told a community luncheon hosted by the San Antonio branch of the Dallas Fed.
Fisher noted that the Dallas Fed's own trimmed measure of inflation -- which excludes the most volatile components of the price index every month to plot the underlying trend -- had been running at 2.4 percent year-on-year. He also said that household surveys found that people expected prices to rise faster in the future.
"To me, this is more than discomforting. It is unacceptable. To perform the duty you expect of me, I need to be relentlessly bird-dogging inflation to prevent a debasement of your dollars," said Fisher, who is not a voting member of the Fed's interest-rate setting committee this year.
Data out earlier on Wednesday showed consumer inflation running at a faster-than-expected pace of 0.4 percent in May, pushed up by a steep increase in energy, while core inflation, which strips out energy and food prices, advanced 0.3 percent in the month and stands 2.4 percent higher year-on-year.
Warning comments from the U.S. central bank over inflation have prompted investors to shorten the odds that the Fed will raise interest rates by another quarter percentage point to 5.25 percent at their next meeting, on June 28-29.
Fisher stuck closely to this hawkish script, outlining a picture of slowing but still strong U.S. growth, provided the Fed did its job in keeping inflation in check.
"The surest way to undermine the real growth rate we foresee from our perch in Dallas would be for inflationary expectations to take hold and begin distorting the spending and investment behavior of consumers and businesses," he said.
To keep prices at bay, the Fed has already lifted interest rates in 16 consecutive quarter point steps from an ultra-low 1 percent in June 2004. Fisher acknowledged that this accumulated action may yet to have made itself felt.
"I am fully aware that there is a lag between the time we tighten the valve and the time the impact of that tightening is felt. Mind you, I am not sure we can measure this lag effect with great precision." With this in mind, the Fed should take no chances when it came to price stability.
"When called upon by the (Fed) Chairman for my reading of the economy and my recommendations ... especially when it comes to contemplating inflation: I believe it safest to err on the side of skepticism," Fisher said.
© Reuters 2006. All Rights Reserved.
http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-06-14T175145Z_01_N14322770_RTRIDST_0_ECONOMY-FED-FISHER-UPDATE-1.XML&pageNumber=1&imageid=&cap=&sz=13&WTModLoc=InvArt-C1-ArticlePage1
Wed Jun 14, 2006 1:51pm ET
Updates with more Fisher remarks, background)
By Alister Bull
CORPUS CHRISTI, Texas, June 14 (Reuters) - Some measures of inflation show it running at levels that cause discomfort and are unacceptable, Federal Reserve Bank of Dallas President Richard Fisher said on Wednesday.
"We can ill afford to somehow encourage expectations that inflation might gain momentum. For in today's monetary realm, with markets so fluid and swift, expectations can quickly become reality," he told a community luncheon hosted by the San Antonio branch of the Dallas Fed.
Fisher noted that the Dallas Fed's own trimmed measure of inflation -- which excludes the most volatile components of the price index every month to plot the underlying trend -- had been running at 2.4 percent year-on-year. He also said that household surveys found that people expected prices to rise faster in the future.
"To me, this is more than discomforting. It is unacceptable. To perform the duty you expect of me, I need to be relentlessly bird-dogging inflation to prevent a debasement of your dollars," said Fisher, who is not a voting member of the Fed's interest-rate setting committee this year.
Data out earlier on Wednesday showed consumer inflation running at a faster-than-expected pace of 0.4 percent in May, pushed up by a steep increase in energy, while core inflation, which strips out energy and food prices, advanced 0.3 percent in the month and stands 2.4 percent higher year-on-year.
Warning comments from the U.S. central bank over inflation have prompted investors to shorten the odds that the Fed will raise interest rates by another quarter percentage point to 5.25 percent at their next meeting, on June 28-29.
Fisher stuck closely to this hawkish script, outlining a picture of slowing but still strong U.S. growth, provided the Fed did its job in keeping inflation in check.
"The surest way to undermine the real growth rate we foresee from our perch in Dallas would be for inflationary expectations to take hold and begin distorting the spending and investment behavior of consumers and businesses," he said.
To keep prices at bay, the Fed has already lifted interest rates in 16 consecutive quarter point steps from an ultra-low 1 percent in June 2004. Fisher acknowledged that this accumulated action may yet to have made itself felt.
"I am fully aware that there is a lag between the time we tighten the valve and the time the impact of that tightening is felt. Mind you, I am not sure we can measure this lag effect with great precision." With this in mind, the Fed should take no chances when it came to price stability.
"When called upon by the (Fed) Chairman for my reading of the economy and my recommendations ... especially when it comes to contemplating inflation: I believe it safest to err on the side of skepticism," Fisher said.
© Reuters 2006. All Rights Reserved.
http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-06-14T175145Z_01_N14322770_RTRIDST_0_ECONOMY-FED-FISHER-UPDATE-1.XML&pageNumber=1&imageid=&cap=&sz=13&WTModLoc=InvArt-C1-ArticlePage1
# posted by tagthatstock @ 11:36 AM 
