KNOXVILLE, Tenn.– The Federal Reserve Board has successfully engineered an economy in which growth is moderate and inflation is low, University of Tennessee economist Dr. Bill Fox said Thursday.
Fox, director of the UT-Knoxville Center for Business and Economic Research, made the comment following a mid-year report to Congress by Fed chairman Alan Greenspan.
“The producer price index has declined for six consecutive months and we have seen slow downs in the consumer price index,” Fox said. “I think he (Greenspan) is looking at that and telling Congress, ‘That’s all we could hope for.”
Greenspan’s remarks indicate the Fed is worried that employment is a bit higher than the board would like, Fox said.
As employment increases, wages tend to rise.
“That’s why they are going to watch it very closely because there are some signs there that wage growth is a little higher than they would like — about 3.5 percent — with inflation running about 2.5 percent.”
Should wage grow continue to accelerate, the Fed fears more inflation in the economy, Fox said.
Greenspan told Congress the Fed stands ready to pre-emptively raise interest rates on loans banks make to each other to make sure inflation does not get out of hand. The Fed last raised interest rates in March — up a quarter point to 5.5 percent.
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Contact: Dr. Bill Fox (423-974-1697)