PHILADELPHIA -- Edward Boehne, president of the Federal Reserve Bank of Philadelphia, said recent inflation fears were "overdone" and "it is hard to see where inflation pressures come from."
Speaking before Tuesday's report that consumer prices rose only 0.1% in May, Mr. Boehne predicted that the inflation rate would subside as the year went on.
The brisk 4.3% rise in consumer prices through April - well above the Federal Reserve's 1993 target range of 2.5% to 2.75% for 1993 -- heightened speculation that the central bank would lean toward tighter credit to contain price pressures.
Reasons for Forecast
Mr. Boehne, who is viewed as a moderate vote on the policy-making Federal Open Market Committee, cited moderate economic expansion, plenty of extra industrial capacity, subdued wage pressures, and sluggish exports as reasons to expect low inflation.
He said that over the next 12 months, inflation may fall below a 3% annual rate. That level would be hard to achieve for the full year, though, due to the rapid gains in the first few months.
In 1992, retail prices rose at a 3.1% rate.
The Philadelphia Fed president said he has recently become more confident in the sustainability of the recovery. A pickup in car and housing sales and housing construction show consumption is reviving and capital equipment spending by business remains strong.
This suggests that the economy can expand at a 3% annual rate over the next nine to 12 months with a gradually improving labor market, he said.
The sluggish export sector, overbuilt commercial real estate market, and defense cutbacks continue to be negative economic influences.
In addition, business people have been spooked by endless wrangling over the federal budget, Mr. Boehne said.