Guynn Discusses Continued Economic Growth and Low Inflation

For immediate release: May 25, 2005

ATLANTA – Federal Reserve Bank of Atlanta President and Chief Executive Officer Jack Guynn spoke today about the continuing pattern of strong growth and low inflation in the U.S. economy. Guynn said he expects gross domestic product growth to remain on a solid path, with continued growth in consumer spending and strong business investment. He attributed softness reported earlier this year to “general skittishness about the springtime run-up of energy prices.” But he added that the pace of economic activity should be sufficient to sustain job growth and push down the unemployment rate.

Speaking to the Certified Professional Home Builder luncheon, Guynn also addressed the “discernible upward drift in inflation.” He noted that “various price measures have been trending higher, thus signaling moderately rising inflation.” He cited higher prices for a range of commodities including oil. “How businesses and individuals react to this energy price outlook—both short and long term—is a key economic uncertainty,” he said. But Guynn cited expanding world trade as a factor helping to mute inflationary pressures, and he added, “I see no signs of an imminent and substantial pickup in inflation.”

Guynn discussed strong growth in residential spending and noted the rapid appreciation of housing prices in certain markets. He said job and income growth should support continued residential investment, but added that he is “uncomfortable” with reports of increasing real estate speculation in select markets. “Real estate is ultimately driven by fundamental factors such as general economic growth, demographics and household income,” he said.

Guynn said he has strongly supported the Fed’s recent actions increasing the fed funds rate target to remove accommodative policy, while noting these actions “reduce the chances that the Fed will later need to take a more painful path of steep hikes.” He added, “The Fed is not raising rates to stifle economic growth, but to ensure an environment of stable prices and sustainable growth over the long term.”

Monetary policymakers need to be “especially sensitive to incoming data and new developments on prices” as the Fed approaches its goal of a neutral policy setting, where rates are at a level that promotes growth without the likelihood of a run-up in inflation, Guynn said. “Given my current outlook for the economy, my personal view is that we’ve not yet reached a neutral policy stance.”

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.


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Contact: Jean Tate 404-498-8035