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WASHINGTON, Mar 16 (AFP): The US economy has solid momentum despite an "aberration" in the fourth quarter of 2005, but the big deficits being financed from overseas capital may be "unsustainable," a Federal Reserve official said yesterday.
Atlanta Fed president Jack Guynn said the central bank's next steps are harder to predict after a series of 14 quarter-point increases to the federal funds rates.
"While our various steps to enhance the transparency of policy actions have been helpful to both financial markets and to policymaking, it's important to recognise that our policy path over the coming period is somewhat less certain," Guynn said in remarks to the Atlanta History Centre.
"And, as I've said on other occasions, as policymakers we should resist the urge to say more than we know."
Most analysts expect the central bank to lift the base rate, currently at 4.5 per cent, at least once or twice before pausing. But some expect the rate to rise above 5.0 per cent.
Guynn said the economy remains on a positive track despite the tepid 1.6 per cent pace of gross domestic product (GDP) expansion in the fourth quarter, which has been attributed to Hurricane Katrina's effects, and that inflation appears largely in check.
"Core inflation, putting aside the volatile food and energy components, has remained relatively low and stable, and, importantly, expectations for future inflation remain 'well anchored,' as monetary policymakers say," he said.
"So, by those basic measures, the US economy is doing quite well, and I believe it's also noteworthy that our economy has adjusted to the current period of rapid economic change in some new and surprising ways."
He said the sharp GDP slowdown in the fourth quarter had little relevance for the outlook.
"The analysis done by my staff and others suggests this relatively weak reading was an aberration that does not imply a loss of momentum going forward. And I agree with this assessment," he said. More ominously, Guynn said the US reliance on foreign capital to finance its deficits was worrisome.
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