RANDOLPH, Mass., Dec 16 - Boston Federal Reserve President Cathy Minehan said on Tuesday the economic expansion seems to be picking up steam, and more jobs should appear even if productivity remains high. "As the expansion seems to be broadening, deepening and picking up steam, excess resources should be absorbed even as productivity growth helps keep costs in check and inflation pressures low," she said in prepared remarks to a Chamber of Commerce meeting in Randolph, Mass. "I think the best guess is a path in 2004 that gradually closes the gap in resource use that was created over the last three years or so," she said, referring to relatively high unemployment and idle factories. Minehan, who will be a voting member of the Fed's policy committee next year, said even as the pace of consumer spending slows as the impact of tax cuts fade in early 2004, it seems likely that business spending will take up the slack. But she noted there were risks to this scenario.
"The hand-off from consumer-driven to business-led growth could falter, bringing a weaker pattern to next year. "On the other hand, very low inventories combined with possible pent-up demand for labor after three years of layoffs could spark faster growth and more pressure on resources," Minehan said. In a speech that focused on developments in productivity over the last decade, Minehan said productivity growth will remain at a relatively high level. As a result, she expects price pressures to be relatively contained, at least over the near term. "There are risks, to be sure, and clearly, for a policy maker like me, a firm sense of vigilance is important as the economy changes tack. But, for now, my sense is we have time to enjoy the good news," Minehan said. Looking abroad, Minehan said conditions in Japan, Europe and most of Asia are all favorable for 2004. "Much of the rest of the world appears ready to grow at a more solid and sustainable pace as well," she said. This bodes well for U.S. export growth, while the U.S. is still expected to grow a bit faster than the rest of the world, she added.//