Rates Should Rise Despite Katrina, Fed Member Says
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Rising inflation pressures need to be addressed with “appropriate” increases in interest rates, even though Hurricane Katrina may temporarily slow the rate of growth the rest of this year, Federal Reserve Bank of Chicago President Michael Moskow said.
“I’m concerned about core inflation running at the upper end of the range that I feel is consistent with price stability,” Mr. Moskow said in the text of remarks to the Futures Industry Association meeting yesterday. “Even without an increase in inflation expectations, it will take appropriate monetary policy to keep inflation well contained.”
Mr. Moskow is the second voting member of the Federal Open Market Committee who has suggested that interest rates are likely to rise after Hurricane Katrina if inflation pressures continue to build. Philadelphia Fed president Anthony Santomero said on August 31 that a “measured pace” of rate increases “will continue to be appropriate.” The hurricane struck New Orleans and other Gulf Coast cities August 29.
Sixty-eight of 81 economists surveyed by Bloomberg News expect the central bank to raise interest rates a quarter point to 3.75% at the September 20 meeting of the Fed’s Open Market Committee, while 13 expect the rate to remain unchanged at 3.5%.
An assessment of Katrina’s impact on the national economy will involve “a number of judgment calls” by the Fed, Mr. Moskow said. “It is very difficult to say how the national economy will be affected,” he added.
