Chicago Fed President Moskow on U.S. economic outlook -- keep on hiking

Chicago Federal Reserve Bank President Michael Moskow gave a speech Thursday night entitled "U.S. Economic Outlook". He said that "it will take appropriate monetary policy to keep inflation and inflation expectations contained. For me, this likely entails some further policy action. Whatever actions are taken, however, will depend on economic conditions." As far as where we are relative to a neutral range for the fed funds target interest rate, he said "we're currently in the bottom end of this range."

He also says that "Even if the funds rate were at neutral, further changes in policy might be appropriate. My view is that inflation will likely remain contained. Energy prices have come off their highs, and solid underlying trends in productivity should keep overall production costs in check. But, as I mentioned earlier, there are risks to the inflation outlook—namely, the potential for energy cost pass through, pressures from increases in resource utilization, or rising inflationary expectations. And with inflation near the upper end of my comfort zone, an unexpected increase in inflation would be a serious concern, while a decline in inflation would be beneficial. My views about policy will depend importantly on how various cost factors play out and affect the outlook for inflation. In addition, if inflation or inflation expectations were to rise persistently, then policy clearly would have to be tightened further. Of course, other events could transpire that result in prospects for inflation and growth that would be consistent with a less firm policy stance."

He adds that "given the reduction in the degree of monetary accommodation over the past 18 months, the policy firming that is likely to be appropriate over the near term is less certain now than it was earlier in the interest rate cycle. This increases the importance of economic conditionality in the policy decision."

He also uses the phrasing "As we move through 2006 and consider the appropriate stance for monetary policy", which doesn't seem to suggest that the Fed will do a "one and done" this month and then coast for the rest of the year.

All of this seems to suggest that he doesn't feel that the Fed will be done in a little over two weeks, and he'd like to see inflationary pressures come down a bit further, that it will take a while longer to decide that the Fed is done. For one thing, as far as the economic data he's like to see develop, very little of that will happen over the next two weeks, and possibly not even by the March FOMC meeting.

It simply doesn't sound like this guy is lobbying for January being the final hike.

-- Jack Krupansky