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The Atlanta Fed


Guynn Describes Solid Growth While Noting Presence of “Significant Uncertainties” in Economic Outlook

For immediate release: May 1, 2006

GUYNN DESCRIBES SOLID GROWTH WHILE NOTING PRESENCE OF ‘SIGNIFICANT UNCERTAINTIES’ IN ECONOMIC OUTLOOK

NASHVILLE—Federal Reserve Bank of Atlanta President and Chief Executive Officer Jack Guynn today noted the economy’s strong performance in the first quarter of 2006 and said he expects continued gross domestic product (GDP) growth with inflation and inflation expectations anchored. But, he added, “there are some significant uncertainties that could shape our economic outlook and help to inform how Fed policy should evolve.”

Consumer spending during the first quarter increased at a solid pace, Guynn said, “in spite of somewhat higher interest rates and the drag from higher energy prices.” Business spending and employment growth also contributed to output growth and appeared on track for further gains in 2006. “The business climate is very supportive for capital spending,” he added.

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 remarked. Guynn described an orderly transition with strong fundamentals supporting continued housing growth, but 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 his discussion of inflation, Guynn noted that the consumer price index (CPI) increased noticeably during the first quarter of 2006, but measures excluding volatile food and energy costs were stable at 2.8 percent for core CPI and 2 percent for core personal consumption expenditures measured on a year-over-year basis. “While these measures are still relatively low, I don’t want to see inflation move measurably higher,” Guynn said.

In providing his outlook for monetary policy, Guynn said, “I expect that output growth will settle on a path that is somewhat below what we saw in the first quarter of this year, probably growing at close to the economy’s potential. I believe that monetary policy adjustments that have already been made, along with other factors such as continuing productivity improvements, should also help to contain elevated inflation pressures.”

Guynn also 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 projections for the likely course for the economy. ... Given the range of possibilities ahead, I believe this is not a time for the Fed to pre-commit to a particular course of policy.”

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.