Transcripts

Lyle Gramley, Former Fed Governor On Increased Interest Rate

SUSIE GHARIB: Darren Gersh talked with former Fed Governor Lyle Gramley and began by asking him if the Fed is signaling more rate hikes are ahead.

LYLE GRAMLEY, FMR FED GOVERNOR: I think they did, yes. They`re looking at a situation that`s uncertain, but they think the negative effects of Katrina on the economy are going to be of limited duration. They indicate that higher inflation is likely to result, not only from energy prices, but from boosts in other prices. They tell us that long- term expectations of inflation are contained, but not well contained as they were in the previous statement. So I think they`re looking at a situation now in which we have to anticipate an increase again in November and one in December in the Federal funds rate, ending at 4 1/4 percent by the end of this year.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Why are they so concerned about inflation? We haven`t seen it actually break out in any of the core indicators. Why the inflation concern?

GRAMLEY: Well, I think the release we saw last week on Friday from the University of Michigan which indicated that consumer expectations of inflation one year down the road took a very big jump. It`s quite problematic for it . It`s worrisome because it suggests that increases in energy prices and so on are more likely to spill over into core inflation and remain there than what otherwise had been the case.

GERSH: But this was a close decision. There were some dissents in here. What do you make of that?

GRAMLEY: I think it was - I don`t think Mark Olsen , Governor Mark Olsen would have dissented if everyone else on the committee had been absolutely sure that increasing the Federal funds rate was the right thing to do.

GERSH: All right. Lyle Gramley, thank you very much.

GRAMLEY: You`re most welcome.