MercoPress. South Atlantic News Agency

Fed anticipates further increase in interest rates

Richmond Federal Reserve president Jeffrey Lacker said it was too soon to anticipate when the United States central bank would interrupt the current higher interest rates tendency and on the contrary suggested further increases.

"I think it's too early to forecast a pause", indicated Mr. Lacker following his address to the Federal Reserve in Richmond, Virigina.

A pause in interest rates rise will depend on the evolution of data and how events develop, "but we seem to be in strong, solid growth ground with inflation expectations contained, and in this situation, following current procedure is the normal agenda", added Mr. Lacker.

The Federal Reserve has increased basic rates nine consecutive times since June 2004 and they now stand at 3,25% and a majority of analysts and economists believe the trend is bound to continue.

However Mr. Lacker eluded the question as to when the trend could change, but admitted that more interest rates increases can be expected with "policy accommodation removed at a pace that is likely to be measured", quoting from the latest Federal Open Market Committee release.

"I wouldn't like to establish a time table but I'm satisfied that the policy accommodation can be removed at a pace that is likely to be measured, with the FOMC ready to respond to changes in economic prospects as needed to fulfil the price stability obligation".

However Mr. Lacker argued that the higher costs of energy have yet to reach structural retail inflation and considered relatively probable that the sustained growth in housing prices could trigger inflation.

"I think that the main risk so far quite small, is a slight acceleration in unit labour costs. Latest numbers show some distortion warnings in the stock market, but it's hard at this stage to have the full picture", concluded Mr. Lacker.

Richmond Federal Reserve caution seems to be in line with business expectations.

The latest Blue Chip Economic Indicators survey shows US economy growth forecasts expanding from an annual 3,5% in June to 3,6% in July, and inflation expected to reach 3% in 2005, the highest since 2000.

In 2006 growth is forecasted to reach 3,3% and inflation 2,5%, mainly because of the hefty jump in oil prices.

Businessmen and bankers surveyed for the Blue Chip Economic Indicators estimate the Fed will continue raising interest rates "two or three" more times, ending 2005 with a basic rate between 3,75% and 4%.