U.S. Growth: inflation should ease

The U.S. economy will likely slow, helping to bring down core inflation, Boston Federal Reserve Bank President Cathy Minehan said Monday.Speaking to the National Association for Business Economics, Minehan said the risks to her forecast have grown on both sides in recent months. "I see growth for the next year or so in the high 2s, approximately full employment, and core inflation subsiding," she said. "Not a bad picture."

Housing is an obvious concern for growth. While she expects the slowdown to be moderate, "recent data on declines in starts and permits, gloomy assessments by builders, the potential for higher mortgage rates, and increased inventories of unsold homes, remind me that this assessment could well be optimistic," she said.

The new types of mortgages could contain "some nasty surprises" for some borrowers and lenders. The economy could slow too much if housing prices actually decline, Minehan said. However, a decline in prices "would be quite an unusual event." And she said moderately rising income and financial wealth will "buoy household spending."

Business investment in structures and equipment should offset some of the headwinds from housing. And global trade is now "marginally supportive of growth," Minehan said.

Another risk is that "inflation will continue to rise or persist at high levels and embed itself in consumer and business plans," she said. She said she's reassured that inflation expectations remain restrained. Much of her speech revolved around the need to raise U.S. savings rates, including reducing the federal deficit and boosting private savings for retirement.