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

By Jean Yung

     WASHINGTON (MNI) - The U.S. economy is on track for continued growth and

for inflation to remain near target 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 London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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