Low Inflation, Economy's Rapid Growth Seen Blocking Shift in Fed Credit Policy
NEW YORK -- The recent slowdown in the economic expansion, coupled with continued low inflation, will keep the Federal Reserve System from tightening its credit hold, according to bankers and economists.</br></br>But the economy still is growing too rapidly for the Fed to ease credit conditions, these analysts contend. The central bank's policy-making group, the Federal Open Market Committee, is scheduled to meet tomorrow to review its monetary strategy.</br></br>Even if the Fed leaves policy unchanged, some analysts warn that short-term interest will continue to push higher, partly because they expect credit demands to remain strong. Furthermore, they say investor jitters over the safety of the banking system, which have contributed to the recent spurt in some key rates, aren't likely to fade any time soon.</br></br>"There isn't any evidence of a need to move policy," said Alan Greenspan, chairman of Townsend-Greenspan & Co., an economic-consulting firm. "The economy seems to be doing quite well" while inflation has remained under control.</br></br>Until recently, many analysts feared that the economy was in danger of overheating and that the Fed would be forced to hit its credit brakes again to avoid a resurgence of inflation. Those fears, however, have all but vanished amid a spate of government reports indicating slower economic growth and surprisingly small price increases on both consumer and business products.