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U.S. economy hard to forecast

Agriculture.com Staff 01/08/2007 @ 4:11pm

CORALVILLE, Iowa (MNI) - While declining to comment on what the Federal Open Market Committee may decide about interest rates at future meetings, Chicago Federal Reserve Bank President Michael Moskow said Wednesday it is "certainly" still the case that additional monetary policy firming may be necessary.

Speaking to reporters after a speech on U.S. economic conditions, Moskow noted, "I never forecast what the FOMC will be doing." He added that "no one knows" what the FOMC will do at future meetings.

Moskow stressed that there remain both upside and downside risks to the economy, from the housing market, jobs and "every sector."

The Chicago Fed president acknowledged that inflation indicators appear to have eased recently, but it is still not clear whether this has become a trend. Inflation could "bounce back," with future reports showing a rise, he cautioned.

The recent weakness in the U.S. housing sector adds to the complexity of forecasting the economy and he noted that this sector remains an "open question."

Responding to audience questions earlier, Moskow said he would not comment on foreign exchange rates, but said it is difficult to explain why long-term market interest rates have stayed low -- the so-called inverted yield curve.

Moskow said the inverted yield curve "may or may not forecast" an economic slowdown, as has traditionally been observed. He added that outside of the housing sector, the "rest of the economy" seems to be "performing well." Although "at this point we have seen a slowdown in housing," he said.

The Chicago Fed president described monetary policy and FX policy as a "division of labor" between the Federal Reserve and the U.S. Treasury Department and was reluctant to answer a question about the dollar's exchange rate:

"We don't talk about exchange rate policy," Moskow said, adding that FX markets "are so volatile" the Fed does not talk about them.

Moskow said the Fed focuses on a "wide range" of data in assessing the health of the economy, including regional transportation indicators and the like.

But "it's hard to look at any one series" as ideal data for the Fed's assessment, he said.

Asked about the rising delinquency rate in the subprime mortgage lending sector, Moskow acknowledged there has been an "increase", but he said the capital markets can be expected to adjust to the situation and would not expect to continue to see delinquency rates rise.

CORALVILLE, Iowa (MNI) - While declining to comment on what the Federal Open Market Committee may decide about interest rates at future meetings, Chicago Federal Reserve Bank President Michael Moskow said Wednesday it is "certainly" still the case that additional monetary policy firming may be necessary.

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