Hi John, it looks like this is going to be one of those weeks where everyone hangs by Greenspan's every word.
Here's a start. Article..
by Reuters] / Mon, 21 Jul 1997 7:22:31 PDT
WASHINGTON (Reuter) - Federal Reserve Chairman Alan Greenspan is expected to use his semi-annual economic report to Congress this week to deliver a message to the financial markets as well -- inflation may be down, but it is not out, and the central bank needs to be wary.
But analysts said that warning should not be taken as a sign that Greenspan and his fellow policymakers are about to raise interest rates, but rather as an indication that they are ready to do so should inflation show signs of reviving.
``I don't think he's going to give us a big warning that the sky is about to fall or they're about to raise interest rates,'' said David Wyss, of Massachusetts-based consultants DRI/McGraw Hill. ``But he will say that there is still a risk of inflation and that the Fed is not ignoring it.''
Greenspan delivers the first leg of his Humphrey-Hawkins testimony on Tuesday to a House Banking subcommittee, then follows that up on Wednesday with an appearance before the Senate Banking panel.
Stock and bond prices have climbed in recent weeks as a string of favorable price reports has fanned talk that inflation is a thing of the past.
Wholesale prices have fallen for a record six straight months, while consumer prices have risen so far this year at their slowest pace since 1986.
The moderation in inflation has occured at a time when unemployment is near a 24-year low and the economy is in its eighth year of uninterrupted expansion.
``The economic fundamentals are ideal,'' said David Jones, Vice Chairman of Wall Street broker Aubrey G. Lanston and Co. ''Solid growth, low inflation, low unemployment, strong productivity growth and strong investment.''
Many at the central bank have been surprised that inflation has not risen already. At five percent, the unemployment rate is well below levels that in the past have led to stepped-up wage demands and faster inflation.
``We have inflation risk without inflation,'' wVice Chair Alice Rivlin put it in an interview with ReutersR1/8X.WHxmonth.
Fed officials said that Greenspan himself is skeptical of the proposition that low unemployment on its own leads to higher inflation.
As a result, the Fed chief has been more willing than some of his central bank colleagues to allow the economy to grow unimpeded and has succceeded in convincing them to hold off from raising interest rates again.
The central bank last tightened credit in March, when it bumped up the federal funds rate that commercial banks charge each other for overnight loans by a quarter percentage point to 5 1/2 percent.
That move drew criticism from Democratic and Republican lawmakers who attacked the Fed for raising rates at a time of quiescent inflation. Congressional sources suggested that Greenspan should have an easier time of it this week, in part because of the perception that he has been the one at the Fed who has held the line on interest rates since then.
Former Fed policymaker Lyle Gramley said that he expects Greenspan to tell lawmakers that the economy is fundamentally sound, but also remind them that the main risk that the central bank faces is a potential flare-up in inflation.
``We've had an extraordinary run of good luck on inflation,'' said Chris Varvares, President of St. Louis-based Macroeconomic Advisers. ``But it may only just be good luck.''
Gramley, who is now a consultant to the Mortgage Bankers Association here, said he also expects Greenspan to voice some concern at the hearings about the continued run-up in stock market prices.
The Fed chief spent much of his last Humphrey-Hawkins testimony in February counseling caution about the steep rise in share prices. Since then the stock market has risen even further, with the Dow Jones index of blue chip shares briefly topping the 8,000 level last week before falling back.
But the economy has also performed much better than expected since then, leading Aubrey Lanston's Jones to speculate that Greenspan is now more relaxed about the stock market and is unlikely to voice renewed concern on that score.
__________________________________________________
Regards, Michael |
