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Fed's Moskow: Inflation Contained; Economy Will Strengthen

In an exclusive interview with CNBC, Michael Moskow, president of the Chicago Federal Reserve Bank, said he believes inflation expectations are “well contained” and he sees stronger economic growth ahead.

“That doesn’t mean we’re not concerned about inflation,” Moskow said during an extended interview on “Squawk Box.” “It doesn’t mean that we don’t think inflation is the predominant risk going forward. But I think on the whole, inflation expectations are well contained.”

He warned that labor costs are increasing while productivity is slowing. Still, he’s optimistic about growth.

“The last quarter, GDP growth was very low – six-tenths of a percent,” Moskow said. “That’s history now. This quarter should be much stronger and, as we move through this year into next year, I see us moving toward potential growth, or long-term trend growth, in the economy. So, I would see improvement clearly from that first quarter.”

He said the Fed’s goal remained unchanged.

“Our objective is to have maximum sustainable growth and price stability,” Moskow said. “We look at the entire economy. We look at the financial markets as part of that. We look at all this data and then decide what’s best for the American people.”

Moskow is a voting member of the Federal Open Market Committee. He said it’s “appropriate to hold the federal funds rate at 5.25%.

“We have two objectives in monetary policy: Maximum sustainable growth and price stability,” Moskow said. “We’ve got to look at both those objectives in determining what our policy is going to be. The decision we make as to what’s the appropriate level for the Fed funds target, is going to depend on our looking at those two objectives.”

Moskow is scheduled to retire at the end of August.

“Inflation was much higher when I started,” he said. “I’m glad it’s lower today. I’d like to see it lower and I hope it’s moving in that direction. I think it is, but we still have a ways to go before we get to the level of inflation that I’m comfortable with on a longer-term basis.”

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