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Economy
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2000-05-16 00:32:00-04
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Tame Inflation Data, Fed will still raise Interest
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Widely anticipated interest rate hike will go ahead despite tame inflation data, outlook for Asia good
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Although the Open Market Committee of the US Federal Reserve Board has not yet met, they will in a few hours raise the US interest rate 50 basis points. This action will be taken to engineer a soft landing for the American economy, which, as everyone knows, has been performing at an unprecedented level. With this interest rate hike a sure thing, the question has been in Asia and elsewhere:'How many more interest rate hikes will it take to curb US inflation?' The answer maybe zero, because the April report on US consumer prices showed data that was 'tame,' not inflationary. This is good news for Asia. Most everyone conceded that Alan Greenspan and his colleagues would take the action today, but speculation really centered on how many more hikes in the future would occur. As it stands now, prospects for additional interest rate hikes in the US appear slim in the absence of truly inflationary data at the present time. The US is concerned that the tight labor market there will escalate wages and an inflationary spiral will develop. However, it is also generally conceded that the productivity of the US economy has been substantially fueled by the impact of computer-driven technology. This technology has raised productivity without inflation in spite of a tight labor market. So one could reasonable argue that in the absence of inflationary data, was there any reason to raise the interest rate today? The answer to that question will surely be debated on the evening news in the US and for weeks to come.
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