The Federal Reserve has largely succeeded in its efforts to assure long-term price stability, Federal Reserve Board Governor Lawrence Lindsey said yesterday at a National Association of Business Economists meeting in Washington, D.C.
Mr. Lindsey said that despite many shocks to the economy, there is widespread talk among analysts of real growth of around 1.5%.
"We have nominal GDP [gross domestic product] growing pretty consistently at close to 4%," Mr. Lindsey told the economists. "That is pretty consistent with long-term price stability."
Mr. Lindsey's comments seem to indicate that Fed officials are not inclined, at least for now, to trim short-term rates.
"The transition to stable prices is essentially complete," Mr. Lindsey said.
But later, in response to a question about the slow growth in the M2 monetary aggregate tracked by the Fed, Mr. Lindsey did not rule out further Fed action. He said he continues to attach importance to the money supply figures.
"We still have 300 basis points left to us," he added, referring to the current 3% fed funds rate.
Mr. Lindsey said he attributes most of the sluggishness in the money supply to the sharp reduction in interest rates that has led investors to put their money in M1, the narrowest of the monetary aggregates, and other liquid accounts.