AG would like you guys to stop spending your ill gotten stock gains with wild abandon. You are hurting us poor country boys.
NW
Greenspan: Inflation Still a Danger
WASHINGTON, Feb 17, 2000 (AP Online via COMTEX) -- Federal Reserve
Chairman Alan Greenspan called the economy's record-breaking
performance the best in a half century, but he warned Thursday that
inflation remains a threat to the economic good times that many
Americans are enjoying.
Wall Street viewed Greenspan's remarks to the House Banking Committee
as confirmation that the Fed will continue to rachet up interest rates
this year until the economy slows to a more sustainable pace.
In presenting the central bank's twice-a-year report on the economy to
Congress, Greenspan reiterated his concerns that employers seeking
scarce workers in the current 'tight' labor market may offer higher
wages and benefits, increased costs that could lead to a sharp runup in
product prices.
'At some point in the continuous reduction in the number of available
workers willing to take jobs ... wage increases must rise above even
impressive gains in productivity' that have helped to keep inflation
low, Greenspan said.
'This would intensify inflationary pressures or squeeze profit
margins, with either outcome capable of bringing our growing prosperity
to an end,' he said.
In efforts to slow the barreling economy and keep inflation at bay, the
Fed has bumped up interest rates four times since June, overall pushing
up by a full percentage point key interest rates that the Fed controls.
But Greenspan said those increases have had little impact.
'There is little evidence that the American economy ... is slowing
appreciably,' he said.
Fed policy-makers 'will have to stay alert for signs that real
interest rates have not yet risen enough to bring the growth of demand
into line with that of potential supply,' Greenspan said. 'Achieving
that alignment seems more pressing today than it did earlier.'
Most analysts widely expect Fed policy-makers will boost interest rates
again at their next meeting March 21, and many also anticipate another
rate increase in May.
Economists said Greenspan's comments appear to support their
predictions of a series of rate increases this year.
Sung Won Sohn, economist for Wells Fargo, viewed Greenspan's remarks as
saying, 'The prescription that we need is high interest rates. I think
Chairman Greenspan is probably getting the message that so far this
slow-motion monetary policy has done nothing to dampen the enthusiasm
in the economy and especially the stock market.'
On Wall Street, the Dow Jones industrial average fell more than 46
points in afternoon trading but the Nasdaq rose more than 100.
'He talked tougher than some had expected,' said David Jones, chief
economist at Aubrey G. Lanston & Co.
Even though inflation has remained low outside of an energy price
surge, Greenspan said this favorable condition cannot last unless the
economy's growth rate slows to less than the 4 percent-plus gains of
the past three years.
Still, Greenspan marveled at the economy's performance: its record
9-year-long expansion; unemployment at a 30-year low of 4 percent; and
strong gains in worker productivity -- output per hour of work.
But even if the productivity gains continue, they could have a downside
for the economy by pushing soaring stock prices even higher, Greenspan
said. The Wall Street boom has contributed to the growth in consumer
demand as investors have spent their stock gains with abandon.
Responding to a question, Greenspan expressed some short-term worries
about the leap in oil prices, which on Monday pushed the per-barrel
price above $30 to the highest levels since the Persian Gulf War in
1991.
Oil inventories have fallen to exceptionally low levels, he said,
leaving the country vulnerable to a big price spike if supplies
suddenly drop further. 'Some are joking that we need to measure the
fumes to get any measurable inventory at all these days,' he said.
But he also said conservation moves by businesses in recent years have
significantly reduced manufacturers' energy needs.
In its outlook for economic growth, the Federal Reserve was more
optimistic than the administration or the Congressional Budget Office,
predicting the gross domestic product will expand by around 3.5 percent
this year. President Clinton based his current budget on a slower 2.9
percent prediction.
The Fed also was more optimistic that inflation will slow this year,
predicting that an inflation gauge tied to the GDP will rise by around
1.75 percent to 2 percent, compared with an increase of 2 percent last
year.
As he has before, Greenspan urged Congress to devote the huge federal
budget surpluses being generated by the economic boom to paying down
the national debt rather than for increased federal spending or cutting
taxes.
Copyright 1999 Associated Press, All rights reserved. |
