16 June 2006, 12:39  Fed's Poole: US Data May Understate Inflation Pressure

U.S. inflation pressure may be stronger than formal data suggest, given anecdotal stories of widespread pass-through of energy price increases, William Poole, president of the Federal Reserve Bank of St. Louis, said Friday. "Statistical studies to detect pass-through from recent energy price increases have failed to show significant effects in U.S. price data, but stories about widespread pass-through are becoming increasingly common," Poole told a Bank of Korea conference, according to embargoed text of his speech. "We may - and I emphasize 'may' because my purpose is to make a general point and not to conduct a full analysis of the current situation - face more inflation pressure than currently shows up in the formal data," he said. Poole's remarks reinforce recent comments by Fed policy makers that show the Fed remains concerned about inflation. Poole is a non-voting member of the Fed's Federal Open Market Committee this year, but his comments on the pass-through of energy prices will likely bolster widespread expectations that the FOMC will raise the federal funds rate by a further 25 basis points to 5.25% when it meets June 28-29. He made the remarks near the end of his speech, which discusses the role of anecdotal information in setting monetary policy. In an environment of continuing low inflation, policy makers will need to pay closer attention to "informal, or anecdotal information" to reduce further movements in inflation and employment, he said. The price of fed fund futures fully factors in an interest rate rise in June and also factors in a 70% chance of a further 25-basis-point hike by the Fed at the following FOMC meeting in August.

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