Indications are growing that the US Federal Reserve Board will move to raise interest rates this week. Comments made by a key US monetary policy maker this weekend fell right into line with private economists' forecasts that the Federal Reserve will raise interest rates next to rein in economic growth.
Federal Reserve Bank of Atlanta president, Mr Jack Guynn, said the US economy has gone through a spectacular winning streak in recent years but Americans should not conclude the exception has now become the rule.
Although Mr Guynn did not directly comment on the likely outcome of the Federal Open Market Committee (FOMC) meeting tomorrow, he warned the Community Bankers of Georgia gathered in Colorado Springs that the present thriving economy may be producing "unrealistic expectations".
"For bankers and central bankers alike, perhaps the most daunting legacy of the current period is what I have called the institutionalisation of unrealistic expectations," said Mr Guynn, whose remarks at the conference were released in New York.
"For central bankers, it's the idea that three consecutive years of nearly 4.0 per cent real GDP (Gross Domestic Product) growth is no longer exceptional but merely average," Mr Guynn said of US economic growth that has averaged 3.75 per cent since early 1996 - or a full 50 per cent more than the pace of economic growth America was once thought to be able to sustain without inflation.
Before the Fed's last rate rise on June 30th, Mr Guynn already had laid out a prophetic scenario about the reasons justifying tighter credit now for a healthy American economy tomorrow.
The Atlanta Fed president's remarks were particularly important for financial markets because Fed officials usually avoid giving a last glimpse into monetary policy right before an FOMC meeting. The FOMC is the FEd's policy making committee.
Wall Street widely expects the FOMC to raise the federal funds rate - the US short-term benchmark rate for overnight inter-bank loans - to 5.25 per cent from 5.0 per cent. A minority of forecasters think another rise may still come before year-end.
The financial industry's forecast is largely based on recent remarks by the Fed chairman, Mr Alan Greenspan, always wary of inflationary risks, and a stream of economic data - mainly wage gauges - that seem to justify such concern.
"For investors, it's the conceit that anything less than 20 per cent growth in the Dow Jones Industrial Average is unacceptable," Mr Guynn also told the bankers' meeting.
Although the Fed usually avoids commenting on stock price levels, it has acknowledged that much of the American consumer's spending spree is tied to the record bull run on Wall Street.
The Dow Jones posted solid gains on Friday, ending up 136.77 points to 11,100.61 - or less than 1.5 per cent shy of its all-time high of 11,252.27 set just over a month ago, on July 19th.
Analysts said it would take more than another mini-rate rise of a quarter percentage point to bring the Dow to its knees and deter the American consumer or investor.
"For bankers, it's the notion there's no such thing as a bad loan," Mr Guynn also said, in a reminder that much of America's boom today is heavily mortgaged on tomorrow's economic dream.
Mr Guynn is not a voting FOMC member this year but remains a vocal anti-inflation advocate on the 19-member committee that includes eight permanent voters - seven Fed Board governors and the head of the New York Fed - and four regional Fed bank presidents who vote on an annual rotating basis.
