As chief economist at Bank One Investment Advisors in Columbus, Ohio, Anthony Chan is responsible for crafting strategy affecting $145 billion in assets under management. Chan, a former Federal Reserve Bank of New York economist, remains an avid watcher of Fed policy. Investment Advisor Editorial Director William Glasgall caught up with Chan recently during a visit to New York, where he held forth on the outlook for the U.S. economy and interest rates. Chan also released a research paper arguing that an expected increase in the Federal funds rate–the charge on overnight loans among banks–spells trouble for the U.S. Treasury bond market. The paper is available by clicking here: www.investmentadvisor.com/links/wer5602.doc.
What are your feelings about on Donald Kohn and Ben Bernanke, President Bush's two nominees for vacancies on the Fed's Board of Governors? Kohn [a Fed economist and Chairman Alan Greenspan's closest advisor] certainly has proximity and access to Greenspan. And in Washington, proximity is everything. He'll have one of the shortest learning curves we've ever seen. As for Bernanke, he more than makes up for the intellectual vacuum left by Laurence Meyers's departure from the board. He has the intellectual firepower of several intellectuals combined. He prefers a closer targeting of inflation than Greenspan might like, and he will fall somewhere into the hawkish camp. He will focus on inflation like a laser beam.
So should we worry about inflation now? No. Not really. Productivity figures are lending support to the idea that inflation isn't a concern for the immediate future.
Will strong productivity numbers result in improving corporate profits? There's no question. In a world where corporations have no pricing power, the only way they can improve profits is by productivity growth. This goes right to the bottom line. We are continuing a productivity boom that began in the 1990s.
What's your forecast for GDP growth? Three and a half to 3 3/4 percent, fourth quarter [of 2002] over fourth quarter [of 2001]. Average growth of 2 1/2 percent to 2 3/4 percent for the year.
