WASHINGTON -- Rising energy and food prices have yet to seep into U.S. core inflation or wages, while the economy will face headwinds for some time, a top Federal Reserve policy-maker said Wednesday.
"The high cost of energy and other primary commodities have not led to much increase in core inflation, partly because of slackening domestic demand, and there is little evidence that these costs are feeding a wage-price spiral," Fed Governor Frederic Mishkin said in prepared remarks.
A copy of his speech, to be delivered at a forum in Eilat, Israel, was made available in Washington prior to delivery.
"The U.S. economy will be subject to substantial headwinds for some time," he said, citing an expected slow recovery from financial market stress sparked by the U.S. subprime crisis.
"Thus, growth could continue to be quite weak, though I hope it would pick up next year," said Mishkin, who is leaving the Fed at the end of next month. He compared the current episode to the post-recession U.S. economy in the early 1990s.
The Fed last week halted an aggressive campaign of interest rate cuts to shield the U.S. economy from a collapsing housing market that chilled growth and sparked a global credit crunch.
It also noted in the statement accompanying its decision to hold rates at 2 percent that inflation worries had grown, which investors took to mean that the next rate move will be up.
But Mishkin's remarks showed that he was also preoccupied with the still-fragile economy, a hint that he might not be pressing for near-term policy action.
"The economy faces challenges. With housing construction continuing to decline and energy prices continuing to rise, risks to growth still appear, to my eyes, to be on the downside. Households face significant headwinds," he said.
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