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NBER: Optin to receive John Berry columns at Bloomberg
Subject: Optin to receive John Berry columns at Bloomberg
From: Martin Feldstein (msfeldst@nber.org)
Date: Fri Jan 28 2005 - 23:14:38 EST
John Berry has been the "dean" of journalists covering the Fed for many
years. For at least 20 years he did it for the Washington Post. He now
does it for Bloomberg. I read his columns with interest even when I don't
agree with them. I am sending this email to all of the members of the
Monetary Economics program. If you would like to be put on John's email
mailing list for his columns, write to him at jberry5@bloomberg.net.
His most recent column follows.
Marty
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> > > > >
> > > > >Fed Will Increase Rates Next Month and Afterward: John M. Berry
> > > > >2005-01-26 00:19 (New York)
> > > > >
> > > > >
> > > > > (Commentary. John M. Berry is a Bloomberg News columnist.
> > > > >The opinions expressed are his own.)
> > > > >
> > > > >By John M. Berry
> > > > > Jan. 26 (Bloomberg) -- Federal Reserve officials, quite
> > > > >pleased with the state of the U.S. economy and the path of
> > > > >monetary policy, will raise their target for the overnight
> > > > >lending rate by another quarter point at their policy-making
> > > > >session next week.
> > > > > That will be six meetings in a row at which the Federal Open
> > > > >Market Committee has taken that same step, and if the economy
> > > > >performs as officials expect, policy will continue on the same
> > > > >path for some time to come.
> > > > > On the other hand, with each quarter point increase, the
> > > > >hurdle to raising the rate at the subsequent meeting becomes
> > > > >greater. Officials say they don't know what federal funds rate
> > > > >would be consistent with keeping inflation stable in an economy
> > > > >operating at its potential, only that they hope to know it when
> > > > >they get there.
> > > > > When they started raising the target last June, it was at
> > > > >only 1 percent, well below anyone's notion of a ``neutral'' rate.
> > > > >With next week's action, it will be at 2.5 percent, still
> > > > >undoubtedly not a ``neutral'' rate, though much closer.
> > > > > In many ways, this is an unprecedented policy path for the
> > > > >Fed because it is the first time in nearly half a century that
> > > > >the central bank has confronted an economic recovery and
> > > > >expansion in which inflation was already at a desired level. So
> > > > >the policy goal is not to bring inflation down, rather to keep it
> > > > >from accelerating significantly.
> > > > >
> > > > > Countering Some Analysts
> > > > >
> > > > > The key to the policy decision at each meeting will be the
> > > > >incoming economic data, the anecdotes about business activity the
> > > > >Fed's widely cast information gathering network picks up and any
> > > > >changes in the economic outlook. As of now, those all appear to
> > > > >point toward growth of about 3.5 percent this year, or perhaps a
> > > > >bit more, with inflation remaining tame.
> > > > > None of this is a secret. Numerous Fed officials have laid
> > > > >out their intentions in recent speeches and interviews, and for
> > > > >the first time, analysts have available the minutes of the last
> > > > >committee meeting on Dec. 14.
> > > > > Some Fed officials, such as Janet L. Yellen, president of
> > > > >the San Francisco Federal Reserve Bank, have even gone out of
> > > > >their way to counter the conclusion of some analysts that the
> > > > >discussion at that meeting about the prospects for inflation may
> > > > >have signaled a rising concern that could lead to a more
> > > > >aggressive drive to raise interest rates. A few analysts
> > > > >suggested the minutes' language pointed to a 50-basis point
> > > > >increase at next week's meeting.
> > > > >
> > > > > Yellen on Inflation
> > > > >
> > > > > In a speech in San Francisco last week, Yellen said
> > > > >otherwise. While she included the standard disclaimer that she
> > > > >was speaking only for herself, not her colleagues, her words
> > > > >might have been spoken by many of them.
> > > > > ``When the minutes were released on Jan. 4, there was a lot
> > > > >of focus on the paragraphs that described some risks that could
> > > > >lead to higher inflation,'' Yellen said. ``But if you read
> > > > >through the document, you'll find that it also contains a
> > > > >discussion of factors that may put downward pressure on
> > > > >inflation. Indeed, at several points, the minutes say that the
> > > > >committee felt that inflation and longer-term inflation
> > > > >expectations remain well contained and the risks to price
> > > > >stability are roughly equal. In fact, those are the very words
> > > > >the committee members agreed to use in the official press
> > > > >statement.''
> > > > >
> > > > > `Equal Time'
> > > > >
> > > > > Since the public reaction to the minutes focused on some
> > > > >forces that could cause inflation to rise, she said, ``I thought
> > > > >I'd use this occasion as a chance to give `equal time' to the
> > > > >other side -- the counterbalancing forces that can hold inflation
> > > > >in check.''
> > > > > She then proceeded to do so, putting those forces in the
> > > > >context of an economy growing at a healthy pace, though less than
> > > > >one might have expected given the amount fiscal and monetary
> > > > >stimulus it had received. Based on the December minutes and
> > > > >public statements by other officials, her analysis is generally
> > > > >shared by a majority of her colleagues, though not necessarily
> > > > >all of them.
> > > > > With the unemployment rate just under 5.5 percent, there is
> > > > >enough slack in labor markets that it should reduce inflationary,
> > > > >Yellen said. The amount of slack, and how fast it may be absorbed
> > > > >by employment growth, isn't clear because of the decline in labor
> > > > >force participation during the 2001 recession. If that drop is
> > > > >cyclical, it should be reversed as the economy grows with slack
> > > > >in labor markets continuing.
> > > > > ``If it's not -- that is, if participation does not rise or
> > > > >continues to fall -- this will mean the remaining slack in the
> > > > >economy will diminish faster, creating upward pressure on
> > > > >inflation sooner,'' she said.
> > > > >
> > > > > Long-term Inflation
> > > > >
> > > > > Yellen's second point was that long-term inflation
> > > > >expectations -- those for inflation five to 10 years out --
> > > > >appeared not to have increased as economic growth improved. Thus,
> > > > >neither workers nor employers seem likely to seek or grant higher
> > > > >wage and salary increases because of higher inflation
> > > > >expectations. And there is no evidence of that in recent changes
> > > > >in compensation, she said.
> > > > > Even if the rate of change in labor compensation were to
> > > > >increase, inflation might nevertheless fall because ``the extent
> > > > >to which businesses have marked up the prices of their products
> > > > >over the unit labor costs they face has been extraordinarily
> > > > >large for some time now,'' she said. Those markups could decline,
> > > > >offsetting compensation gains or result in lower inflation.
> > > > > Yellen acknowledged that higher oil prices and the decline
> > > > >in the dollar could add to inflationary pressures. ``The key
> > > > >question is whether this upward pressure on inflation will
> > > > >persist,'' she said. Even if the pressure were to persist, the
> > > > >real issue would be whether that affects long-term inflation
> > > > >expectations, something that has not happened so far.
> > > > >
> > > > > Productivity Growth
> > > > >
> > > > > Her final point was whether productivity growth, which has
> > > > >slowed in recent quarters from an extraordinarily high pace for
> > > > >several years, will continue at its estimated trend of about 2.5
> > > > >percent a year. ``If so,'' she said, ``core inflation seems
> > > > >likely to remain stable, near its current moderate pace, assuming
> > > > >no new developments in compensation or profit margins. I see the
> > > > >risks in this regard as fairly well balanced.''
> > > > > Yellen concluded by saying that monetary policy is still
> > > > >accommodative and ``as the expansion firms up, that degree of
> > > > >accommodation will have to diminish.'' That is, more rate
> > > > >increases are in store.
> > > > > If economic growth speeded up, or other risks to inflation
> > > > >materialize, ``it may be appropriate to remove accommodation more
> > > > >rapidly. If the expansion slows, or if we experience some of the
> > > > >downside inflation risks, there will be more opportunities for
> > > > >the committee to pause,'' she said.
> > > > > It is hard to be more transparent than that.
> > > > >
> > > > >--Editors: Ahearn, Wolfson
> > > > >
> > > > >Story illustration: To compare the Fed's target rate with the
> > > > >monthly unemployment rate:
> > > > >{FDTR <Index> USURTOT <Index> HS 2 <GO>}. To see a series of fed
> > > > >funds futures contracts: {FFA <Cmdty> CT <GO>}. For stories about
> > > > >Federal Reserve actions: {FEDU <GO>}. For multimedia recordings
> > > > >of Fed officials' speeches: {NCMT 93 FED <GO>}.
> > > > >
> > > > >To contact the writer of this column:
> > > > >John M. Berry in Washington at (1)(202) 624-1962 or
> > > > >jberry5@bloomberg.net.
> > > > >
> > > > >To contact the editor responsible for this column:
> > > > >Bill Ahearn at (1)(212) 893-4197 or
> > > > >bahearn@bloomberg.net.
> > > > >
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> > > > >#<529087.166543>#
> > > > >-0- Jan/26/2005 5:19 GMT
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