Atlanta Fed President Guynn Expects Continued but More Moderate Rate of Growth for 2001

For immediate release Jan. 8, 2001

ATLANTA – The U.S. economy will continue to expand in 2001, but growth will be more moderate than in the last several years, according to Jack Guynn, president and chief executive officer of the Federal Reserve Bank of Atlanta.

Guynn, who was speaking before the Atlanta Rotary Club today, said, “In the long term, I think the moderation of growth that we’ll witness in 2001 will be a mostly healthy thing. It will help the economy avoid some serious imbalances that might otherwise have begun to accumulate, and it will help ensure that growth remains sustainable.” He mentioned several areas of the economy that will likely moderate in 2001, including consumer spending and capital investment.

On the demand side, Guynn acknowledged that consumer spending will likely slow somewhat over the short term, but he said the good news is that unemployment is low and that wage growth remains very healthy. “These [characteristics] serve as a sort of psychological and financial foundation for consumer spending, and as long as they’re in good shape, consumer spending will continue to increase — although, again, at a more moderate rate.”

On the supply side of the economy, Guynn underscored the part of the Federal Open Market Committee’s (FOMC) statement of Jan. 3 that said “there is little evidence to suggest that longer-term advances in technology and associated gains in productivity are abating.” He also said that he continues to think that productivity is not likely to grow at the rates witnessed over the previous five years but that businesses should still be able to make the capital investments they need to grow productivity in 2001.

In discussing the effects of the FOMC’s decisions during the past few years, Guynn said that “the slowdown we’re witnessing in spending growth ought to ensure that a more comfortable and sustainable balance is achieved between demand growth and supply growth and that inflation remains low. This was, of course, the ultimate objective of the six rate increases implemented by the FOMC beginning in June 1999. Low inflation helped bring the expansion into its 10th year, and low inflation will help take it through the 11th.”

In closing, Guynn said that while inflation expectations remain under control, the great challenge for this year may very well be inflated expectations. In this regard, he offered a reminder: “Slower gross domestic product (GDP) growth is not the same thing as no growth; a slightly higher unemployment rate is not the same thing as high unemployment; and a very modest uptick in measured inflation does not signal a return to accelerating inflation. Businesses, consumers — and, yes, even policymakers — should not allow inflated expectations to distort their thinking.”

Text of delivered speech

Contact: Jean Tate 404-498-8035