September 22, 2004

HOOKED ON A FEELING:

Fed: Economy regaining traction (JEANNINE AVERSA, September 22, 2004, Chicago Sun-Times)

With the economy moving ahead and the nation's payrolls picking up a bit, Federal Reserve policy-makers boosted short-term interest rates for a third time this year -- but left economists split about when the next increase might come. [...]

The Fed, explaining its unanimous decision, said the economy -- which slowed earlier this year partly because of soaring energy prices -- now ''appears to have regained some traction.'' That echoed a comment Greenspan made to Congress earlier this month.

In another encouraging note, the Fed said, ''Labor market conditions have improved modestly.'' That was a better assessment than the Fed offered in August, when it said job market improvements had slowed.

''The Fed is sending a message of relative comfort with the current condition of the economy,'' said Lynn Reaser, chief economist at Banc of America Capital Management. ''They suggested we are pulling out of the soft patch.'' [...]

Fed policy-makers stuck to their view that future rate increases would be gradual because inflation is expected to remain relatively low. Inflation has eased in recent months despite the rise in energy prices, the Fed said.


Much as folks would like to believe that capitalism is rational, this action was purely psychology driven. An economu growing at a comfortable rate with no sign of inflation doesn't need rate hikes.

Posted by Orrin Judd at September 22, 2004 10:15 AM
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