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Inflation Appears to Be Cooling Off, Brady Says

From Reuters

Treasury Secretary Nicholas F. Brady said Thursday that inflation seems to be cooling off and suggested that there may be no reason to raise interest rates further.

Although the White House and the Federal Reserve have sometimes squabbled in recent months over the inflation threat, Fed Chairman Alan Greenspan indicated Wednesday that he, too, wanted to wait and see what impact the central bank’s recent credit tightening would have on the economy.

In a speech to the National Assn. of Manufacturers, Brady acknowledged differences of opinion but said the Administration was as determined as the Federal Reserve to curb inflation.

“It is possible to have different interpretations of the same economic statistics and still share the same goal of fighting inflation,” he said.

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While some economic indicators were of concern, such as the large 1% increase in producer prices in both January and February, others were reassuring, Brady said.

He cited recent declines in durable goods orders and retail sales as well as Tuesday’s moderate 0.4% increase in the consumer price index.

Interest Rates Higher

An executive in the audience took issue with Brady’s optimism that inflation is under control.

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Peter Nord, president of Schauer Manufacturing Corp., a small Cincinnati firm that makes battery chargers, said he was ordering a 6% price increase as of today because the cost of his raw materials, including steel, copper and cardboard, had doubled in the past year.

“We’re just begining to pass along to our customers the cost increases we’ve had over the past year,” he said.

Brady responded that for competitive reasons not all industries were in a position to pass along higher costs to consumers. “The CPI seems to be leveling off at a 4% increase,” he said.

Greenspan told a House banking subcommittee that the full effects of the Fed’s tighter policy over the past year have yet to be felt by the U.S. economy.

The Fed has gradually pushed up short-term interest rates from about about 6.5% last March to nearly 10% today in an attempt to prevent inflationary pressures from destabilizing the economy and thereby killing the current expansion, now in its seventh year.

Greenspan said there are “significant lags” between the time the Fed pushes up interest rates and when economic activity begins to slow in response.

In conjunction with Fed Vice Chairman Manuel Johnson’s observation Wednesday that the economy is showing signs of moderating, economists took Greenspan’s remarks to mean that the Fed would not tighten credit further for now.

President Bush said Tuesday that he would be unhappy if interest rate increases dampened economic growth.

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Although he denied any policy differences with the Fed he seemed to be signaling Greenspan not to press too hard on the monetary brakes.

“I don’t want to see any actions taken that are going to kill off the growth in our economy,” Bush told reporters.


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