Central Banking

Fed's Moskow: More rate hikes possible

Fri, Dec 1 2006, 19:08 GMT

CHICAGO (AFX) - The president of the Federal Reserve Bank of Chicago said Friday that recent price data "have been consistent with some easing in inflation," but he reiterated that additional interest rate hikes may yet be necessary to contain inflationary pressure.

"The key is whether that (inflation) trend can be sustained and how quickly inflation will move back to the range that is commensurate with price stability," Michael Moskow said in a speech at Carthage College in Kenosha, Wis.
Moskow, as he has done in several speeches over the past few weeks, warned that high actual inflation could cause inflation expectations to run too high. He noted that the Federal Reserve has been able to stand pat on interest rates at its last three meetings because inflation expectations have been contained.
"Nonetheless, we have to be vigilant in monitoring these expectations," Moskow said. "If they did increase, it would be incumbent on the Federal Reserve to adjust policy to affirm our commitment to price stability."
Moskow isn't currently a voting member of the policy making Federal Open Market Committee, but he will be in 2007.
The Institute of Supply Management, a private research group, said Friday that its index of manufacturing activity fell to 49.5 in November, indicating that the manufacturing sector contracted during the month. The figure came in well below market expectations and marked the first time in nearly three-and-a-half years that the ISM number didn't show expansion. Following the release of the data, interest rate futures traders in Chicago began factoring in a higher likelihood that the Fed will cut rates in 2007.

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