‘Fed rate cut may not trigger inflation’

Paris, May 17: US inflation levels are unlikely to pose any problem for the rest of this year or next year, despite cuts in interest rates, chief White House economic adviser Glenn Hubbard said on Thursday. Even the aggressive interest rate reductions by the Federal Reserve to fight off a sharp economic slowdown were unlikely to spark inflationary pressures, Mr Hubbard said in an interview. “Inflation pressures are quite modest in the United States. I don’t think that inflation will be a problem this year, or next year, even with the rate cuts,” said Mr Hubbard, who just last week became head of the US Council of Economic Advisers.

Mr Hubbard, formerly an economics and finance professor at New York’s Columbia University, was attending annual talks among trade, finance and environment ministers from the 30 countries in the Organisation for Economic Co-operation and Development (OECD). US inflation data on Wednesday showed that consumer prices rose more moderately than expected in April, with the Consumer Price Index up 0.3 per cent after a 0.1 per cent gain in March.

Analysts believe that relatively modest inflation figures give the US Federal Reserve room for further cuts in key interest rates, following the five cuts it has made in as many months, with the last one effected earlier this week. Mr Hubbard, who said on Wednesday that he expected the US economy to pick up from around the end of this year from a sudden slowdown in late 2000, said he believed consumer spending was holding up well. He also said that he expected the benefits of rate cuts for general economic activity to start feeding through towards the end of this year. (Reuters)