Guynn Foresees Solid Growth for 2006 but Cites Long-Term Challenges
The U.S. economy is likely to stay on a sustainable path of growth in 2006, according to Jack Guynn, president and chief executive officer of the Federal Reserve Bank of Atlanta. In a speech to the Rotary Club of Atlanta in early January, Guynn said that gross domestic product growth should average 3–4 percent for the year and that consumer spending, business spending, and hiring should continue to grow solidly.
Inflation and monetary policy outlook
Though overall measures of inflation drifted upward in 2005, Guynn noted that core measures, which exclude volatile food and energy costs, have been stable in recent months. “In my view, adjustments in monetary policy have helped to limit these inflationary pressures,” he said. “Also, competitive market forces and strong productivity increases are contributing to our currently low inflationary environment.”
Looking ahead, Guynn said that he believes inflation expectations will remain anchored and that the Federal Open Market Committee (FOMC) will continue to focus on preventing expectations of higher inflation. The FOMC has removed much of the accommodation from monetary policy since mid-2004 through gradual interest rate increases. Because of those moves, many people “may be wondering when enough is enough.” In response to that view, Guynn said that “the closer we [the Fed] get, the less explicit we can be on that point.” He cited December FOMC meeting minutes, which noted that “the number of additional firming steps required probably would not be large.” But Guynn feels that the FOMC needs to retain flexibility to respond to unexpected developments.
Long-term challenges persist
Despite his generally positive outlook, Guynn recognized that some people don’t feel so optimistic about the direction of the economy. He cited three long-range issues that could contribute to economic troubles ahead: higher energy costs, downward pressure on wage growth coupled with concerns about employee health care and pension programs, and the nation’s long-term fiscal outlook. He views the fiscal outlook as very worrisome and called on fiscal policymakers to address budget shortfalls while the economy is strong.