Federal Reserve policymakers will likely raise interest rates today, but they should consider taking a breather on future rate hikes, said David Jones, a top Fed watcher.
“There are a lot of hints that consumers may be pulling back,” said Jones, president and chief executive of Denver-based DMJ Advisors. “Katrina has been significant. It may have broken the camel’s back.”
The Fed may raise rates today to help contain inflation in consumer goods, which is already threatened by higher energy prices.
But those higher energy prices have made consumers and businesses more cautious about spending and could slow overall economic growth, Jones said.
Federal Reserve Chairman Alan Greenspan, who is set to step down after the Fed’s Jan. 31 meeting, would like to get interest rates to a “neutral” level, Jones said.
A neutral rate is one that contains inflation without stalling economic growth.
Jones estimates a federal funds rate of 4 percent would be neutral, although Greenspan hasn’t disclosed his target.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
