As Economy Chugs Along, the Probability of Higher Interest Rates Rises
For months, analysts have been warning about higher inflation numbers descending upon the economy. At recent congressional hearings, Federal Reserve Chairman Alan Greenspan also warned about the growing threat of inflation and the Feds' intention of curtailing it by raising interest rates, if necessary, in spite of four increases in short-term rates by the Fed since March.</br></br>Assuming that the chairman is a man of his word, we should soon see higher interest rates, since the data released on Wednesday concerning the gross national product revealed a rapid increase in inflation from the previous quarter. The data detailed good economic growth, with GNP having grown at an annualized rate of 3.1 percent for the second quarter of 1988.</br></br>However, the two measures of inflation-the implicit price deflator and the fixed weighted price deflator-both showed rapid gains from the first quarter of the year.</br></br>The implicit deflator jumped from 1.7 percent to 4.1 percent, while the fixed weighted price index grew from 3.7 percent to 4.7 percent.</br></br>One particular bright spot in the economy was the strength of the export sector. The data showed that the trade figures had improved dramatically during the last three quarters.