Another Hike in Interest Rates May be Inevitable as Fed Responds Too Little Too Late, Says Michael R. Darby, Consulting Economist for City National Investments.

LOS ANGELES--(BUSINESS WIRE)--Sept. 2, 1999--

Despite the calmness projected by the Federal Reserve at this year's annual bankers retreat, Michael R. Darby, consulting economist for City National Investments, expects yet another hike in interest rates prior to the close of 1999.

Banking representatives from around the world attended the retreat focused on world economy and the U.S. stock market. Held in Jackson Hole, Wyo., the annual event is organized by the Federal Reserve Bank of Kansas City.

According to Darby, the cause for a probable hike in interest rates is the Federal Reserve's reaction to further evidence of rising inflation. Although efforts have been taken to maintain a balanced economy, Darby fears that the Fed has moved too little, much too late, to achieve its goal of gently restraining inflation.

"The 1990s, like the 1960s, have been economically exuberant," said Darby. "However, we will be fortunate if the first decade of the new millennium does not resemble the troubled 1970s."

In a report prepared for City National Investment's newsletter, Quarterly Update, Darby points out that inflation in 1999 is running at nearly 2.5 percent -- about 0.8 percent higher than in 1998, and predicts that the Consumer Price Index is likely to rise faster than the core rate, reflecting higher oil prices and a falling value of the dollar.

Although many relate low unemployment to high inflation, Darby explains that both unemployment and inflation respond with differing lag times to monetary policy, which is the main cause of difference in inflation rates over time and among countries.

With regard to what to look for when seeking warning signs, Darby stated that the onset of a classic monetary inflation is typically characterized first by acceleration in wage increases and often in commodity prices.

In his article, Darby mentions the fact that the chairman of the Federal Reserve, Alan Greenspan, kept his comments to the attendees direct and to the point. Greenspan described the difficulties facing the Federal Reserve in evaluating the role of asset prices in economic behavior.

"We no longer have the luxury to look primarily to the flow of goods and services, as conventionally estimated, when evaluating the macroeconomic environment in which monetary policy must function," Greenspan said. "There are important, but extremely difficult, questions surrounding the behavior of asset prices and the implications of this behavior for the decisions of households and businesses."

Greenspan also implied that corporate earnings may be somewhat overstated because the value of stock options are not being charged against corporate earnings and booming stock values have allowed companies to trim pension contributions.

For more than 30 years, City National Investments has offered complete and comprehensive investment management, including trust services and in-house securities trading. Staffed by more than 150 professionals, City National Investments specialists administer and manage client assets in excess of $15 billion.

The premier business and private bank for Southern California, City National Bank is a federally chartered commercial bank with about $6.7 billion in assets. City National now has 49 banking offices throughout Los Angeles, San Diego, Orange, Riverside, San Bernadino and Ventura counties. City National Bank is also a wholly owned subsidiary of City National Corporation (NYSE:CYN).