Magazine article American Banker

Market's Fears of Fed Tightening Eased by Volcker; Fed Chief Sees Nation on Verge of New Era of Sustained Growth and Low Inflation

Magazine article American Banker

Market's Fears of Fed Tightening Eased by Volcker; Fed Chief Sees Nation on Verge of New Era of Sustained Growth and Low Inflation

Article excerpt

NEW YORK -- Growth in the economy and the money supply may be accelerating, but the continued low inflation rate will permit the Federal Reserve Board to maintain short-term interest rates at or below current levels.

That was the message, as interpreted by Wall Street analysts, delivered by Federal Reserve Chairman Paul A. Volcker to a business group in Washington last week.

While Mr. Volcker declined to "declare victory" in the war against rising prices, he said the nation is on the verge of a "new era of sustained growth and low inflation" -- one that has endowed monetary officials with greater flexibility in their management of money and credit.

"We have a little more flexibility in the conduct of policy today, with price rises restrained, the dollar strong, and commodity prices low," Mr. Volcker told a business luncheon hosted by The Washington Post Thursday. In the opinion of the Wall street bond trading fraternity, one participant said such comments were taken to mean, "We will not tighten any time soon."

The dominant element in the current economic and monetary mix is the dollar, most analysts agree. "The Fed can use the dollar to keep short-term rates where they are, even while the economy strengthens," said Marc Wanshel, vice president and economist at Crocker National Bank in San Francisco.

Mr. Wanshel explained that while the strong dollar lessens the competitiveness of U.S. industry in foreign markets, it dampens the U. …

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