CHICAGO - The U.S. economy is probably going to slow next year while inflation edges up modestly, Federal Reserve vice chairman Alan Blinder said Friday.
In a briefing to the Chicago Board of Trade, Blinder said, "I don't expect a breakout" from a range of 2.5% to 3.5 % for consumer prices "in this business cycle."
Blinder said he believes the economy will feel the brunt of the Fed's six increases in short-term rates in 1995, given the long lag that is typical between credit-tightenings and changes in behavior by business and consumers. The Fed began raising rates in February.
The preliminary estimate released by the Fed in July calls for U.S. growth in the range of 2.5% to 2.75% in 1995. Blinder did not indicate any specific disagreements with those numbers.
Blinder noted that an unusually large run-up of $55 billion and $60 billion in business inventories has contributed to this years robust economic growth. In his testimony last Wednesday to the congressional joint Economic Committee, Fed chairman Alan Greenspan said growth in U.S. gross domestic product has exceeded 4% so far this year.
But Blinder said businesses are likely to expand inventories more slowly in 1995, and he estimated that a more typical increase of about $30 billion could trim GDP by one to two percentage points.
In response to a question about events in Orange County, Calif., Blinder said that so far, financial markets seem to have handled the situation without any "terribly serious disruptions." But he said officials are monitoring events from the Federal Reserve Banks of San Francisco and New York.