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CFTC official who answered silver market manipulation complaints resigns
Fed Says It Will Act as Need on Inflation
By Tim Ahmann
Reuters
Tuesday, June 8, 2004
http://www.reuters.com/newsArticle.jhtml;jsessionid=215SD3WZQNLW0CRBAE
OCFEY?type=businessNews&storyID=5374657
WASHINGTON -- The Federal Reserve will do "what is
required" to keep inflation in check if the forecast
behind its view that interest rates can rise gradually
proves wrong, Fed Chairman Alan Greenspan said
on Tuesday.
Greenspan, speaking to a group of bankers in London
by satellite, suggested the Fed was prepared to act
aggressively if needed to stem inflation, even as he
restated the central bank's view that it could likely
act at a "measured" pace.
"That conclusion is based on our current best judgment
of how economic and financial forces will evolve in the
months and quarters ahead," he said. "Should that
judgment prove misplaced ... the (Fed) is prepared to
do what is required to fulfill our obligations to
achieve the maintenance of price stability."
A feed of his remarks to the conference, where he
was part of a panel with European Central Bank
President Jean-Claude Trichet and Bank of Japan
Deputy Governor Toshiro Muto, was made available
in Washington.
The Fed has held overnight interest rates at a 1958
low of 1 percent since last June. But it is widely
expected to bump them up by a quarter percentage
point at the conclusion of its next meeting on June
29-30. Analysts expect that move to be the first
step in a protracted rate-rise cycle.
Greenspan said financial markets have already been
adjusting in anticipation of Fed action, contrasting the
current period with the painful tightening cycle of 1994,
when investors were caught off-guard by rate hikes.
Still, some in financial markets worry the Fed has
waited too long on rates and think policy-makers
may have to tighten credit more quickly than they
now anticipate as a result.
U.S. bond prices slipped, the dollar rose, and stock
prices fell after Greenspan's remarks. Some
economists said he sounded a bit more hawkish on
inflation than other members of the Fed's
policy-setting Federal Open Market Committee have
recently.
"He is certainly not stepping out of line with the
FOMC's stance but is choosing to emphasize a
willingness to move more aggressively if
circumstances require it," said Pierre Ellis, an
economist at Decision Economics in New York.
Greenspan said a sharp recovery in U.S. business
profits provided evidence of "the restoration of a
significant degree of pricing power," which he said
was also apparent in accelerating core inflation.
While he said competitive pressures should limit the
extent to which businesses pass along higher
production costs to consumers, he said high energy
prices posed an inflation risk. "To date, (those)
cost pressures have been relatively subdued.
Nonetheless, the persistence of the rise in energy
prices is a worrisome element in the cost picture,"
he said.
U.S. light crude oil hit $42.45 a barrel last week, the
highest in 21 years, but the price has dropped about
$4 since then. Greenspan called the decline welcome,
but said it was too soon to call it a trend.
"Higher oil prices, if they persist, are likely to
boost core consumer prices, as well as the total price
level, in this country," he said.
The core Consumer Price Index, which strips out
volatile food and energy costs, has risen at a 3 percent
annual pace over the past four months, a big pickup
from last year's 1.1 percent gain, to cement
expectations of Fed action.
Some Fed officials argue that the flare-up in core
inflation is likely to prove largely temporary.
Greenspan, answering questions before the banking
group, made clear he was not abandoning the Fed's
relatively benign outlook.
"Our view ... is for stable prices or close to stable
prices for the period ahead," he said. "So far we
have no reason to believe we will not be able to
maintain a measured pace in the elimination of
what we presume to be at this stage an
unnecessary degree of accommodation."
While caution in corporate boardrooms and executive
suites in the wake of a series of accounting scandals
had lessened -- with hiring and capital spending on
the rise -- Greenspan said it had not disappeared
entirely.
"The very fact ... that we have a corporate sector
which has been quite reluctant to move forward at
an aggressive pace, means that we're not likely to
get a surge in activity which will create a problem
for us," he said.
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