Could it be that the worst is over... Greenspan upbeat.
Says technology continues to fuel productivity and
oil price spikes will not last...
www0.mercurycenter.com
Greenspan remains
upbeat
Fed chair reports economy strong despite oil concerns
BY JOHN M. BERRY
Washington Post
WASHINGTON -- Federal Reserve Chairman Alan Greenspan said
Thursday morning that world oil prices are likely to fall from their
recent highs and that the oil price spike has done little damage to the
U.S. economy.
In an upbeat speech at the Cato Institute's annual monetary
conference here, Greenspan also said there is no ``credible evidence''
that the acceleration of productivity growth, which has been spurred
by technological advances in recent years, has come to an end.
The continuing gain in productivity -- the amount of goods and
services produced for each hour worked -- has allowed firms to pay
higher wages without passing those costs on to their customers and
``has been essential to containing price increases,'' the Fed chairman
said.
Touching on a key issue in the presidential campaign, Greenspan said
the big swing in the federal budget from large deficits in the early
1990s to growing surpluses most recently ``has helped fill the pool of
saving that has Fed productivity-enhancing and cost-reducing capital
formation.'' The earlier ``outsized federal budget deficit . . . was
absorbing an inordinate share of our national saving,'' he said.
Vice President Al Gore, the Democratic presidential nominee,
frequently makes this same point about federal finances in his
campaign appearances while attacking his opponent, Republican Gov.
George W. Bush of Texas, for proposing a broad tax cut that would
reduce future budget surpluses by $1.6 trillion over the next decade.
However, Gore has also proposed a series of smaller tax cuts that
would reduce the surpluses by about $500 billion over the same
period and has urged spending increases for a variety of programs
that also would eat into the surplus.
``The mounting fiscal surpluses have been an important source of
national saving, muting upward pressures on interest rates at a time of
strong demand for private credit,'' Greenspan said. ``By keeping the
cost of capital lower than it otherwise would have been, the surpluses
have contributed to (greater capital investments) and faster growth of
productivity.''
Then with a nod to the campaign promises and the large increase in
the fiscal 2001 budget now pending in Congress, he added, ``But I
believe most of us harbor doubts about whether the dynamics of the
political process, some of which have been on display in the current
budgetary deliberations, will allow the surpluses to continue to grow.''
Greenspan's comments on the outlook for oil prices and how their
increase has affected the economy were the most detailed he has ever
given.
After noting that the U.S. economy uses oil much less intensively than
it did in the 1970s when oil price spikes did great damage, the Fed
chairman said it ``still has the potential to alter the forces governing
economic growth in the United States.''
``To date, the spillover from the surge in oil prices has been modest,''
he said. ``Any effect on inflation expectations . . . has been virtually
nil. Moreover, despite some slowing that likely has been related in
part to the bite from the so-called `oil tax' on household incomes, the
growth of consumer spending has remained firm. . . . But
policy-makers will need to be on the alert for oil-driven, indeed
energy-driven, risks to our expansion.''
Greenspan said oil prices likely will fall because they are far above the
cost of producing crude oil even from the most expensive oil fields in
operation.
While prices for oil currently available to refiners ``have soared and
plunged,'' the price per barrel in futures contracts calling for oil to be
delivered six years down the road ``generally moved lower over the
past decade,'' Greenspan said. That six-year time span is long enough
for companies ``to seek, discover, drill and lift oil,'' he said. |
