MercoPress. South Atlantic News Agency

Fed member does not rule out further rates hike

The Federal Reserve “pause” in the series of rate hikes which was interrupted earlier this month has proved “constructive”, but further increases might be needed to tame inflationary tendencies admitted Tuesday Michael Moskow, president of Chicago's Fed branch.

"The risk of inflation remaining too high is greater than the risk of the economy slowing. Some additional firming of policy may yet be necessary to bring inflation back into the comfort zone within a reasonable period of time" said Moskow during prepared remarks to a local chamber of commerce in Bloomington.

Moskow noted that core personal consumption expenditures, those excluding energy and food costs, have risen above his "comfort zone" of between 1 and 2%. As a result, Moskow would not rule out a resumption of the rate-hike cycle.

Last August 8 the Federal Open Market Committee decided to keep its key short-term lending rate at 5.25%, after 17 straight meetings in which the panel raised the rate in quarter-percentage-point increments dating back to June 2004. The Federal Reserve monetary policy-making panel meets again September 20.

But the Fed Chicago chairman also reiterated earlier statements made by Fed chairman Ben Bernanke and the FOMC that they see signs of slower growth. That in turn will cause a moderation of inflation pressures, according to the Fed.

The U.S. economy is feeling "some effects" of a two-year policy of rising short-term interest rates among which are part of the reason for a slow-down impacting the housing market. However, Moskow found no reason to revise estimates of a 3 to 3.25% US economy expansion for 2006.