Greenspan: US Growth Slowing For Time Being
By Rich Miller, Economics Correspondent
WASHINGTON (Reuter) - Federal Reserve Chairman Alan Greenspan said Tuesday that U.S. economic growth was slowing, heading off for now the need to raise interest rates.
"I have no doubt that the current stance of policy ... will need to be changed at some point," Greenspan said in prepared testimony to a House Banking subcommittee. "For the present," he added, "demand growth does appear to have moderated."
In a semi-annual Humphrey-Hawkins report to Congress closely watched by financial markets, Greenspan said he expects growth to moderate from its breakneck pace at the start of the year, but added that he was unsure whether that would be enough to prevent economic strains.
"With considerable momentum behind the expansion and labor market utilization rates unusually high, the Federal Reserve must be alert to the possibility that additional action might be called for to forestall excessive credit creation," Greenspan said.
The stock and bond markets welcomed his comments, with the Dow Jones industrial average, which was already up about 50 points, surging after a transcript of his remarks was released. The Dow closed up 155 points to a record high 8061.
The interest rate on the benchmark 30-year Treasury bond fell to 6.44 percent, its lowest since Dec. 5, 1996.
Greenspan spent much of his opening testimony discussing the reasons behind the recent stellar performance of the U.S. economy and whether that can be maintained.
While temporary factors such as the strength of the dollar and muted wage gains have played a role in holding down inflation, Greenspan also saw signs the economy has experienced "basic improvements" that have raised its long-term efficiency.
Greenspan said technological innovation may have boosted worker productivity and created significant new profit opportunities for businesses. But he added that it was unclear how long what he called the "unexpectedly strong" growth of productivity will last.
Greenspan described the job market as tight, with employers having an increasingly tough time finding workers suited to their needs.
He said wage demands have been held down by a lingering fear among workers that they will lose their jobs, although those concerns have dissipated somewhat.
"If the pace of job creation continues, the pressures on wages and other costs of hiring increasing numbers of such individuals could escalate more rapidly," he said.
The Fed last raised a key interest rate by a quarter percentage point in March to head off the threat of inflation. But since then U.S. economic growth has moderated and inflation has remained subdued despite the tight labor market. |
