Guynn Describes Strong U.S. Economy; Discusses Varying Effects of Globalization

For immediate release: March 15, 2006

ATLANTA—Despite weak growth in gross domestic product (GDP) in the fourth quarter of 2005, solid U.S. economic growth should continue, said Jack Guynn, president and chief executive officer of the Federal Reserve Bank of Atlanta. He referred to the slowdown in GDP growth in the fourth quarter as an aberration. “I think the most likely path for the economy is sustained GDP growth with inflation and inflation expectations contained within acceptable bounds,” said Guynn. “But I, like others, will be watching carefully as events unfold.” Guynn was speaking at the opening of an exhibit on Southern capitalism at the Atlanta History Center.

Among the issues that Guynn said warranted attention were household and business spending in the face of higher energy prices and transitions in housing markets. Also, he noted, liquidity from still accommodative credit markets could “boost the economic expansion and contribute to stronger-than-expected inflationary pressures.” Despite these concerns, Guynn said he believes the fundamentals of continued economic expansion are still in place. He described a pattern of solid business and consumer spending that he believes will continue in 2006. Moreover, he noted that more than 2 million jobs were added in 2005, and he forecast more of the steady monthly job gains that helped to push down the unemployment rate in February to 4.8 percent.

Guynn said core inflation measures (excluding volatile food and energy costs) have drifted upward for the past two years to around 2 percent—a level he described as “the upper bound of what I would like to see over the long run.” But he added recent inflation observations have defied precedent as many businesses have chosen to absorb—rather than pass through—sharp energy cost increases.

Another factor Guynn discussed in his analysis of inflation and economic growth is globalization, which he described as a powerful but not fully understood development. “Global capital flows are having an increasingly important impact on our current economic climate,” he said, noting the unusual performance of long-term interest rates and growth of U.S. nonfinancial debt, including the growing U.S. government fiscal deficit. In many ways, according to Guynn, our economy has entered uncharted waters. He went on to say this situation is one reason he suspects many people feel uneasy about the economic outlook, despite the mostly positive economic data.

As for monetary policy, Guynn noted the Fed has taken significant steps to remove policy accommodation and has been effective at signaling the direction and pace of future policy. Guynn said he believes these actions made a favorable economic outcome much more likely. But, he added, “It’s important to recognize that our policy path over the coming period is somewhat less certain.”

The full text of Guynn’s remarks is available on the Atlanta Fed Web site at

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.

Contact: Jean Tate 404-498-8035