do we have complacency v berney and bush pact

do we have, 'the current market's complacency' versus 'a berny and bush political pact' ?



THE FED
More rate hikes may be needed, Fed officials says
Chicago's Moskow says inflation risks might require more 'firming of policy'
By Greg Robb, MarketWatch
Last Update: 2:48 PM ET Aug 22, 2006


WASHINGTON (MarketWatch) -- Financial markets shouldn't assume that policy-makers at the Federal Reserve are done raising interest rates, the president of the Chicago Federal Reserve Bank said Tuesday.
Michael Moskow has consistently delivered anti-inflation warnings to financial markets this year, and his latest speech was no exception.
Current economic conditions suggest "the risk of inflation remaining too high is greater than the risk of growth being too low," Moskow said in remarks prepared for delivery before the McLean County, Ill., Chamber of Commerce.
"Thus, some additional firming of policy may yet be necessary to bring inflation back into the comfort zone within a reasonable period of time," Moskow said. Read prepared text of Moskow's address.
After his speech, the stock market turned lower and the Dow Jones Industrial Average was down 18 points after starting the session higher. The dollar gained ground, and short-term bond prices fell. See Market Snapshot.
Moskow's comments put him solidly in the camp of Fed officials worried about inflation. Opposing policy-makers believe the Fed may overshoot or hurt the economy by raising rates too much.
In a separate speech on Tuesday, retiring Atlanta Fed president Jack Guynn warned his colleagues not to forget the "poisonous" effects that inflation can have on an economy. See full story.
Fed officials will debate these issues at their annual Jackson Hole economic conference this weekend. See full story.
'If inflation stays stubbornly high while we wait ... inflation expectations could increase -- and that would be very costly.'
— Michael Moskow
For his part, Moskow said the Fed would have to balance the benefits of waiting for the economic outlook to become clearer with the "costs of waiting too long."
"If inflation stays stubbornly high while we wait to see the effects of earlier policy actions, inflation expectations could increase -- and that would be very costly," he said.
Moskow said growth in the nation's economy should slow to just below a 3% rate for gross domestic product. But he said he didn't see signs of "a more worrisome downshift in activity."
Job growth over the past three months isn't the sign of a slowdown that many economists have assumed, Moskow said.
He called the job market "solid" and said financial market conditions are supportive to growth.
"So businesses and consumers are likely to continue spending at a reasonably healthy rate," Moskow said.
He added that the second quarter's GDP growth rate of 2.5%, down sharply from the first three months of the year, was probably due to temporary factors, such as the timing of shipments of transportation and communications equipment.
Moskow is not a voting member of the Federal Open Market Committee, which sets monetary policy, this year.
In his remarks, Moskow said a pause in hiking interest rates earlier in August was a "constructive choice."
It would allow the Fed to evaluate a variety of important developments, he said.
First, it's hard to judge how restrictive interest rates are at the 5.25% level, he said. Second, more information will be available about how extensive the slowdown is in the U.S. housing market.
And finally, the Fed will be able to see if the economy does indeed bounce back from the weak second quarter and if energy prices level off, according to Moskow.
Greg Robb is a senior reporter for MarketWatch in Washington.