Saturday - 11:53 01/29/2000, EST
Blistering U.S. Growth Worries IMF
DAVOS, Switzerland (Reuters) - The United States needs to tame blistering growth and raise
interest rates soon to prevent the world's top economy from overheating, a senior International
Monetary Fund official said on Saturday.
Stanley Fischer, the fund's first deputy managing director, said he was confident the U.S.
Federal Reserve would confirm expectations in world financial markets and raise short-term
interest rates when its policy-making council meets next week.
Nothing less than the future of the entire world economy depended on U.S. policy-makers, he
told a news briefing at the World Economic Forum's annual meeting, an exclusive get-together
of the world's movers and shakers in the Swiss Alps.
Asked what was his main concern for the world's near-term economic outlook, Fischer said: ``A
lot will depend in the short run on how the United States handles its excessively rapid growth
and possibly rising inflation.'
But he added: ``If that is handled with the skill that the Fed has shown it is capable of in past
years, then I expect we will have continued and rising world growth.'
Fed policymakers meet on February 1 and 2 and are widely expected to bump up the key Fed
funds overnight bank lending rate by a quarter percentage point to 5.75 percent just as the U.S.
economy enters a record 107th month of unbroken expansion.
On Friday, the U.S. government said the economy grew by a red-hot 5.8 percent, the briskest
pace of increase in a year, driven by strong consumer spending and businesses building up
inventories.
Fed officials have long worried that such strong growth, coupled with the tightest labor market
conditions in a generation, will eventually push up wages and prices.
They nudged up borrowing costs three times last year, but those moves have had little impact
yet on strong U.S. demand.
``The Fed has been signaling a rate increase next week,' Fischer said. ``The inflation pick-up
suggests that will happen.'
NEW ECONOMY, OLD LAWS
U.S. Treasury Secretary Lawrence Summers, arriving in Davos with President Clinton, said the
U.S. economy was in good shape but warned investors not to get carried away.
``In many ways we have a new economy in the United States,' he said. ``But it is a very serious
mistake to overinterpret that relationship. The laws of economics have not been repealed,
much less those of human psychology.'
Summers also said that the nation's low savings rate continued to be a dark spot in an otherwise
bright picture.
``For the new economy to succeed, it must be built on old virtues,' he said. ``Our national
savings rate is still far too low, driven by a personal savings rate that is not where it should be.'
Summers added that the high and rising U.S. trade deficit was ``a real concern' and could
eventually pose a threat to economic growth. He reiterated long-standing demands for Europe
and Japan to boost their own economies, thus helping to increase demand for U.S. exports.
At last week's meeting of finance ministers and central bankers from the world's seven major
industrial nations, the United States won high praise for its economic boom and historically
still-low inflation. But the group also expressed concern about the low U.S. savings rate.
The mere fact that such less-than-glowing language on the U.S. economy was included in the
G7 statement pleased some of Washington's European partners who have complained about
what they see as a persistent U.S. tendency to lecture the rest of the world.
``It is important that each of our countries, including the United States, have some structural
problems to solve,' French Finance Minister Christian Sautter told the Davos meeting. ``We
have to work in each of our countries.' |
