Greenspan: Strength of Rebound Unclear
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Wednesday April 17, 10:33 am Eastern Time
Reuters Business
Greenspan: Strength of Rebound Unclear
By Glenn Somerville
WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan on Wednesday said the strength of the current U.S. economic recovery was not yet clear and warned a lasting rise in energy prices could have ``far-reaching'' consequences.
Further bolstering a growing view that interest rate increases are not imminent, Greenspan added that given low inflation, the Fed will have ``ample opportunity to adjust policy to keep inflation pressures contained once sustained, solid, economic expansion is in view.''
The Fed slashed the key fed funds rate, which influences borrowing costs throughout the economy, last year to a 40-year low of 1.75 percent. Greenspan said that such an accommodative monetary policy over the long haul was not consistent with steady prices but gave no hint policymakers were contemplating raising that rate soon.
The Fed chief praised the economy's resilience in the face of adversity. ``But the strength of the economic expansion that is underway remains to be clarified,'' he said in testimony to the congressional Joint Economic Committee.
However, the central bank chairman said there were encouraging signs of an increase in U.S. final demand -- seen as crucial to a sustained recovery by Fed officials -- but again warned that the outlook for this was murky.
He said that the current pickup in economic activity stems mostly from a rebuilding of inventories cut sharply last year by firms trying to get rid of a heavy overhang of stock.
``The pickup in the growth of activity, however, will be short lived unless sustained increases in final demand kick in before the positive effects of inventory investment dissipate,'' the Fed chief said.
``We have seen encouraging signs in recent months that underlying trends in final demand are strengthening, but the dimensions of the pickup are still not clear,'' he added.
There were words of warning about energy prices, which have climbed amid turmoil in the Middle East as well as increased demand spurred by the economic recovery.
Greenspan said that a limited rise in energy prices would have only a small effect on the U.S. economy, but he said a large and sustained rise would have ``far-reaching consequences.'' |
