Guynn Sees Solid Economic Growth, Notes Uncertainties Ahead
In a speech to the Rotary Club of Nashville in May, Federal Reserve Bank of Atlanta President and Chief Executive Officer Jack Guynn noted the economy’s strong performance in the first quarter of 2006, adding that he expects gross domestic product (GDP) to continue its growth and inflation and inflation expectations to remain in check. But, he added, there are also “significant uncertainties that could shape our economic outlook and help to inform how Fed policy should evolve.”
Housing markets, energy costs are key
One of the risks to the outlook, Guynn said, is housing. “In recent months, there is growing evidence of a cooling in many markets across the country,” he said. Although strong fundamental factors support continued housing growth, he said “the market is changing, and the impact of the housing adjustment on overall economic activity is not yet fully evident.” Guynn added that persistently higher energy costs are another risk that induces reallocation of spending and adds to cost pressures.
In discussing inflation, Guynn distinguished between core measures of inflation, excluding volatile food and energy costs, and so-called headline measures of the consumer price index. “While these [core] measures are still relatively low, I don’t want to see inflation move measurably higher,” Guynn said.
Economy’s behavior will determine monetary policy
Regarding monetary policy, Guynn said that he believes output growth will settle to a rate somewhat below the growth seen in the first quarter of 2006. “I believe that monetary policy adjustments that have already been made, along with other factors such as continuing productivity improvements, should help to contain elevated inflation pressures,” he said.
Fed policy is at a point that “requires careful analysis of new economic data, especially data that might signal an uptick of inflation or increase in inflation expectations that would affect our likely course for the economy.... Given the range of possibilities ahead, I believe this is not a time for the Fed to precommit to a particular course of policy,” Guynn said.