One on One with Michael Moskow, President of the Federal Reserve Bank of Chicago
Monday, May 21, 2007
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SUSIE GHARIB: Wall Street strategists and economists are debating what the Federal Reserve will do next about interest rates. But what`s the thinking inside the Fed? To get some answers I talked today with Michael Moskow, president of the Federal Reserve Bank of Chicago. He`s one of 10 Fed officials who currently vote on interest rate policy and will be stepping down this summer after serving 13 years. My first question, what`s your assessment of the U.S. economy?
MICHAEL MOSKOW, PRESIDENT, FEDERAL RESERVE BANK OF CHICAGO: I see the economy improving as we move through this year. I see growth improving and I see our expectation is that inflation rates will continue to come down as well during this period. I would expect that the unemployment rate will not go up a great deal. We`re at 4.5 percent which is very low by historical standards. We expect some slight increase in the unemployment rate during this period, so I think it`s moving in the right direction.
GHARIB: Mr. Moskow, it`s been about a year now since the Fed stopped raising interest rates. As you look at the economy in terms of growth, inflation and housing, have things played out the way that you expected?
MOSKOW: I think the growth rate is somewhat slower than we had expected. We had some increases in energy prices that we did not expect so you saw some higher inflation rates, but I think in general, we`re seeing things play out pretty much as expected. Now going forward, if we don`t start improving as we move through this year and the growth rate does not move up, then that would be a surprise to many of us.
GHARIB: We`ve seen a correction in housing. Where in the process are we? How much further do we have to go?
MOSKOW: I don`t think anyone can answer that precisely. Now as we move through this year, I would expect to see the housing market stabilizing but no one can say exactly when that`s going to happen. I had thought it was stabilizing towards the end of last year as well and then we had some numbers that turned out to be worse than expected.
GHARIB: There`s a lot of talk about the spillover effect of housing. How manageable is the spillover on the broader economy and on the consumer?
MOSKOW: So far it`s been manageable. One is the spillover to other segments of the housing market, the prime category and we have not seen spillover there at this point. And then there`s the question of spillover into consumer spending overall. Will consumers slow down their spending because of the reduction in housing prices in some markets of the economy. We have not seen that to significant extent, so far.
GHARIB: Various people at the Fed say there is a comfort zone when it comes to inflation. Is there a comfort zone and are we in it or are we out of it?
MOSKOW: The Federal open market committee has not taken a official position on any comfort zone or any range for acceptable inflation on a longer term basis. Some people including myself have identified a zone of 1 to 2 percent. Right now we`ve been running above that range for over three years. So I would personally, this is again my personal view is I would like to see inflation rates running lower at this point and more toward the center of that zone.
GHARIB: When Ben Bernanke came in as chairman of the Fed, there was a lot of talk about inflation targeting and now it seems less so. Is there a loss of enthusiasm for inflation targeting?
MOSKOW: This is a very important decision for a central bank to make and as Ben Bernanke said when he first came into office during his confirmation hearing, he said he want to study this and analyze it very carefully before we make a longer term decision going forward and we`re in the process of that now.
GHARIB: On Wall Street we`ve seen the Dow hitting so many records this year. To what extent is a strong stock market a factor in Fed policymaking?
MOSKOW: Rising equity markets do have a wealth effect. They benefit consumers and they over time will have an increase in consumer spending. It is something that we would take into consideration along with the other factors that would affect consumer spending. For example, gasoline prices have been elevated so that adversely affects consumer spending. The labor markets have been strong. That`s a positive impact on consumer spending. So it`s not just one item that we would take into effect in that analysis of consumer spending but this whole range of influences on consumer spending.
GHARIB: Mr. Moskow, you`re leaving the Fed in August and some of your other colleagues are also leaving or have left recently. With the loss of all of this collective wisdom, what impact is that going to have on Fed policy making?
MOSKOW: (INAUDIBLE) institutions, there`s going to be a turnover of people, but institutions are much stronger than any individuals and I`m sure that going forward the Fed, its policy will be, they`ll be doing just as good a job in the future as they have been over the years that I have been at the Fed.
GHARIB: Mr. Moskow, thank you very much for your time, appreciate it.
MOSKOW: Thank you, Susie.
