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The U.S. economy should experience a “good year” in 2007 with moderate growth and lower inflation, said an influential Federal Reserve official on Monday (Jan. 8).
“Conditions appear to be in place for a good year for the U.S. economy, one marked by growth that is moderate and sustainable and by inflation that will be lower than last year’s,” said Donald Kohn, the Fed’s vice-chairman.
CBS MarketWatch reported that Kohn’s views on the economic outlook are considered important by other top Fed officials. Kohn has spent his entire career at the central bank, rising to become a top Fed staffer under former chairman Alan Greenspan before he was appointed to the board.
In October, Kohn first said a soft landing appeared likely, even though it “seems too good to be true.” With two months more economic data in hand, Kohn stuck to his soft-landing forecast.
“The economy appears to be weathering the downturn in housing with limited collateral effects and inflation appears to be easing with the aid of lower energy prices, well-anchored inflation expectations, and competitive labor and product markets,” Kohn said in a speech prepared for delivery to the Atlanta Rotary Club.
Kohn stressed it was too early for the Fed to lower its guard against inflation, suggesting the central bank will retain its hawkish inflation language after its next meeting on Jan. 30-31.
“Despite the recent favorable price data, I believe it is still too early to relax our concerns about whether the run-up in price pressures in the spring and summer of last year is truly unwinding and whether it is unwinding rapidly enough to forestall a pickup in inflation expectations,” Kohn said.
Kohn said he expects a very gradual decline in inflation, but cautioned that this outcome was “by no means assured.”