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MNI INTERVIEW: US On Track For Healthy Growth: Fed's Athreya

By Jean Yung
     WASHINGTON (MNI) - The U.S. economy is on track for a soft landing on
growth and inflation after the Federal Reserve suspended its three-year
tightening campaign this year, Richmond Fed research director Kartik Athreya
said in an interview Wednesday.
     He added that domestic risks look benign relative to uncertainties from
abroad and dismissed concerns that a brief inversion of the three-month-10-year
yield curve last month portended a near-term recession, noting that negative
term premia have been a drag on long-term rates.
     "Things are coming back to where one would have expected them, and it's not
warranted to put a great deal of weight at this point to a recession or a
significant downturn. It could happen, but data does not lead you so easily to
that point of view," he said.
     Fed officials have hinted that interest rates might stay on hold through
the end of the year, citing muted inflation and global economic and financial
developments as reasons to be "patient" in adjusting policy.
     Meanwhile, March data have bounced back, restoring confidence in consumer
spending and jobs. Retail sales rose 1.6% from February, beating expectations
and making up for losses earlier in the year. Payroll growth also rebounded in
March to 196,000 after February's dismal 33,000, while weekly initial jobless
claims sank to a new 49-year low Thursday.
     Adding in a large upside surprise in auto and aircraft exports in February,
analysts now expect first quarter GDP growth to register closer to 2.5%, better
than last year's reading of 2.2%.
     As data turns more positive, markets have also pared back bets on a rate
cut this year. MNI PINCH shows markets pricing a 58% chance of a 25-basis-point
cut by December, down from a near certainty after the March FOMC meeting, when
officials lowered their projected policy path over the medium term.
     All in all, policy appears to be in the right place with a high bar to a
rate move in either direction, Athreya said.
     "'Patient' is a way of making sure that even if we felt that maybe in the
longer term rates needed to be a little higher than they are right now, that
we'd be more careful about taking those steps," he said.
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com
[TOPICS: MMUFE$,M$U$$$,MT$$$$,MX$$$$]

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