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The Atlanta Fed


Guynn Projects Solid Growth with Adjustments in Certain Sectors, Including Housing

For immediate release: June 7, 2006

GUYNN PROJECTS SOLID GROWTH WITH ADJUSTMENTS IN CERTAIN SECTORS, INCLUDING HOUSING

ATLANTA—Federal Reserve Bank of Atlanta President and Chief Executive Officer Jack Guynn today said economic growth is likely to moderate to a more sustainable pace following the strong first quarter gross domestic product increase of 5.3 percent. He said that some easing in growth could occur in the months ahead because of elevated energy costs and increases in interest rates that are still working their way through the economy. He also described a housing sector adjustment as underway in certain markets.

Guynn said the number of new homes sold in the United States has increased for about 15 years, and housing activity has been especially strong since 2002. He attributed much of the increase in residential construction and price appreciation to attractive mortgage rates and the availability of new mortgage products that increase buying power. He also cited demographics and job growth as other factors contributing to housing growth. But, following recent mortgage rate increases and a rise in the inventory of single-family homes, Guynn said he did not expect the housing boom to continue.

With an adjustment in housing, Guynn said he expected a moderate slowdown in the growth of consumer spending. “As home price escalation slows, consumers can be expected to feel less confident about gains in wealth and may well begin to feel inclined to save more and spend less,” he said.

With regard to inflation, Guynn said the Fed is evaluating various factors that both hold down price pressures and add to inflation risks. “Headline measures of inflation of late have been bothersome, with higher oil prices contributing to much of the run-up in those broad readings. Core inflation, which excludes volatile food and energy costs, has moved into the upper end of—or beyond—the range I consider acceptable over time.”

Guynn noted the Fed is closely watching measures of inflation expectations, which he said recently edged upward. Despite these concerns, however, Guynn said that his current forecast calls for inflation to fall back within acceptable bounds. If that forecast holds, he described the Fed’s current monetary policy after 16 straight rate hikes as “close to where it should be.” He added: “We have to remain open to rethinking our policy setting as that outlook changes.”

A transcript of Guynn’s remarks is available on the Atlanta Fed Web site.

The Federal Reserve Bank of Atlanta serves the Sixth Federal Reserve District, which encompasses Alabama, Florida, Georgia and parts of Louisiana, Mississippi and Tennessee. As part of the nation’s central banking system, the Atlanta Fed participates in setting national monetary policy, supervises numerous commercial banks and provides a variety of financial services to depository institutions and the U.S. government.