The Federal Reserve is gradually moving away from its inflation-fighting goal, Robert Dederick, consulting economist at Northern Trust Co., said last week.
"The Fed is gradually losing its anti-inflation zeal," Mr. Dederick told members of the National Association of Home Builders in Washington.
He said as that happens, "I see the Goldilocks economy"-not too hot, not too cold-"becoming the stressed-out economy."
Fed policy makers will continue to fight inflation in months and years ahead, though they will be less committed, raising the risk that price pressures could rise, Mr. Dederick said.
"We've already seen it," he said. "If you're so harsh, why didn't you tighten last September? It took them until March to tighten 25 basis points. That's not going to do the job."
Last month, the Federal Open Market Committee raised the overnight bank lending rate by a quarter-point, to 5.5%. The Fed's monetary policy arm is to meet May 20 to consider whether to change interest rates again.
Mr. Dederick said the Fed is interested in its own survival and will give in to political pressures and favor growth rather than inflation.
He also said the composition of the Fed's Board of Governors will reflect this shift away from price stability.
Mr. Dederick, who spoke of himself as the "class pessimist," said the U.S. economy was closer to an inflationary spurt than a lasting slowdown. "I think this economy is moving toward overheating," he said.
The home builders association expects the Federal Open Market Committee to vote to raise the federal funds rate another quarter-point, to 5.75%, at the May meeting.
