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		Home Page Fed's Moskow says inflation worries are premature Tuesday February 3, 12:49 pm ET NEW YORK, Feb 3 (Reuters) - Chicago Federal Reserve President Michael Moskow said on Tuesday analysts' worries that inflation is on the rise are premature because the labor market is still weak and factories are running below capacity. "The rapid pace of (GDP) growth has even led some analysts to raise concerns about increasing inflation... I think such concerns are premature," Moskow told a Chamber of Commerce lunch in South Bend, Indiana. "We expect inflation to remain low," he said. In the first remarks from a Fed official since the central bank last week unexpectedly dropped its promise to keep interest rates low for a "considerable period," Moskow signaled no urgent need to hike rates to fend off inflation. Investors took the change in the Federal Reserve's wording about low interest rates as the first hint of a rate rise in coming months. But Moskow stressed he did not see a pick-up in inflation, which would trigger a monetary policy response. "Even though growth in the second half was exceptionally strong, we have yet to see the kinds of pressure on labor and capital resources that often signal an increase in inflation," said Moskow. He cited the relatively high unemployment rate, which stood at 5.7 percent in December, and factories running below capacity. Indeed, Moskow, a non-voting member of the Fed's policy committee this year, noted the most recent data showed inflation is "extremely low". A key reading of inflation released on Monday showed a rise of only 0.7 percent in the year to December, the lowest on record. The core personal consumption expenditures index (PCE) is closely watched by the Fed. EMPLOYMENT STILL WEAK Although the Fed is mindful of factors like the two-year decline in the dollar's value, which could raise import prices, Moskow said the central bank believes the effect of economic slack "remains predominant". "Even with the solid growth expected as we move forward, slack resources could persist for some time," Moskow said. In its policy statement on Jan. 28, the Fed said it can be "patient" in changing its easy monetary policy. The federal funds rate is at 1.0 percent. Futures markets brought forward the timing of the first rate rise to June after last week's Fed policy meeting, while economists are split over whether the Fed will start raising rates in June or wait till next year. Moskow stressed the labor market is "a key area" of weakness and he said the big question for the economy is whether the recent surge in demand is sustained, or falters like the spurt in activity in 2002. "There remains a discrepancy between this surge in demand on one hand and the lack of employment growth on the other. "Employment growth has been disappointing," said Moskow, but he added he remained optimistic and cited improved unemployment insurance claims and the national survey of purchasing managers by the Institute for Supply Management. He remained optimistic on the economy, saying growth could beat consensus forecasts for around 4.0 percent growth this year.   Back to Original Article: Mortgage News You Can Use   Continue with: $2.4 Tril Bush Budget Ups Defense, Security, Curbs Other Spending Lies, Damned Lies, and Bush's Budget US Govt Proposes Speedier GDP, Trade Stats In '04 Budget Ford Motor's January U.S. Auto Sales Drop 5.2 Percent; Nissan Posts Gain Budget Plan Includes More For SEC, Mortgage Overseer Mortgage rates seen holding steady Don't overlook the tax breaks of home mortgage points Reserve Bank to make decision on interest rates tomorrow Bogus Budgeting Spending Outpaces Income Budget Plan Includes More For SEC, Mortgage Overseer Job Cuts Increase in January Treasuries Bounce, Wary of Moskow Factor Yields increase on Treasury bills Oil Falls as Speculators Take Profits Companies make lots of pink-slip plans in January Bush calls for revised savings plans Wages, factory hiring fall 2 engines of growth power economy Job cut announcements jump
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