The Federal Reserve will hold interest rates steady over the next three to six months, says Allen Jacobson, senior vice president at HSBC Washington Analysis.
Mr. Jacobson told a Bloomberg Forum that he expects inflation to remaintame over the winter and, therefore, "There's no reason for the Fed to take action" in the months ahead.
Fed policymakers have voted four times, most recently on Sept. 12, to leave interest rates alone after they lifted the federal funds rate on overnight bank loans by a quarter point, to 5.50%, in March. They meet again in November and December, and many economists expect a rate hike at one of those meetings.
Mr. Jacobson downplayed Friday's government report that producer prices rose by a larger-than-expected 0.5% in September, the largest monthly increase since December 1995. The report was skewed by higher cigarette prices posted by tobacco companies to help raise money for a proposed financial settlement with state attorneys general and by auto companies' decision to lower prices in August, rather than September, to clear out inventories, he said. "Let's not go crazy about one month."
It would ring alarm bells at the Fed if consumer prices ran up a string of 0.3% increases, Mr. Jacobson said. He doesn't see signs of that happening yet.
Mr. Jacobson said that with inflation running so low-1.6% over the first eight months of the year-the Fed need not act preemptively against inflation.
"The Fed is focused on looking at inflation as the determiner of monetary policy, not growth," Mr. Jacobson said. "If inflation does accelerate, the Fed feels it would have enough time to make a correction without it getting out of hand."
He soft-pedaled the statement last week by Fed Chairman Alan Greenspan that the U.S. economy "is on an unsustainable track." Mr. Jacobson said the remark doesn't mean Mr. Greenspan is ready to raise rates without a visible increase in inflation.
Rather, the analyst said, the Fed chief meant to send a "warning shot" to remind investors that the Fed remains alert to the potential threat of inflation.
