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Mon, May 29, 2006 - Page 10 News List

US bank president optimistic about inflation control

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US Federal Reserve Bank of San Francisco President Janet Yellen said globalization won't affect the central bank's ability to control inflation and there's nothing to keep the US from achieving "the inflation target of its choice."

"Globalization does nothing to imperil the Fed's ability to attain its inflation objectives," Yellen said in prepared remarks to a conference at the University of California in Santa Cruz on Saturday.

The US, "operating under a flexible exchange rate regime, can ultimately achieve the inflation target of its choice," she said.

Fed policy makers, who have indicated they are considering a pause in their run of interest rate increases, may face slower growth and faster inflation when they meet next month. Reports on Friday showed consumer confidence faltering while a measure of prices closely watched by the central bank edged higher.

Central bankers have raised their benchmark rate 16 consecutive times since June 2004, most recently to 5 percent on May 10. Interest-rate futures show traders assumed a 56 percent chance the Fed will lift its rate by a quarter point at its June 28 to June 29 meeting, up from 20 percent at the start of the month.

Yellen, 59, has headed the largest Fed district by population, area and economic output since June 2004. As a Fed governor from 1994 to 1997, she never dissented from a rate decision.

In the text of her speech, the bank president said increasing global capacity has had a "modest" effect on holding inflation down over the past decade. Nonetheless, she said, "global factors may impact inflation in the medium term" and already may be "undermining the bargaining power of US workers."

"Globalization may have an effect on wage/price dynamics, and as such, may require that monetary policy be recalibrated to take these changes into effect," she said.

Since Fed Chairman Ben Bernanke told the Joint Economic Committee of Congress last month that the Fed may suspend its rate increases, figures have showed a pick-up in inflation.

The Commerce Department's price gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, rose 0.2 percent last month. The 2.1 percent rise from the same month last year was the biggest since March last year.

Bernanke is among central bankers who have said they would be comfortable with 1 percent to 2 percent increases in the core measure of inflation. Just as a surge in energy and commodity prices is fanning inflation concerns, reports in the past week point to a slowing economy.

The economy grew at an annual rate of 5.3 percent from January though March, slower than forecast.

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