Greenspeak?>>
Interest rate deja vu: In 1994 and early 1995, the Federal Reserve jerked short-term interest rates higher, in seven consecutive increases that sent the bond market into a swoon and left stock prices nearly unchanged.
Economist Susan Sterne at Economic Analysis Associates in Greenwich, Conn., spotted eerie similarities between recent remarks by Greenspan and some he made just before the Fed launched its interest rate hikes 10 years ago.
On Jan. 31, 1994, the Fed chief said, "In the labor market, firms' efforts to restructure and improve productivity are continuing to restrain hiring, and concerns about job security persist."
On Wednesday, Greenspan said, "Overall, the economy has lately made impressive gains in output and real incomes, although progress in creating jobs has been limited."
Ten years ago, the Fed chief said, "Currently, we have the difficult task of assessing the appropriate time to move away from an extended period of monetary accommodation. ... Short-term interest rates are currently abnormally low in real [inflation-adjusted] terms. At some point, we will need to move them to a more neutral stance."
On Feb. 11, 2004, Greenspan said, "Evidence indicates clearly that such [an accommodative] policy stance will not be compatible indefinitely with price stability and sustainable growth; [interest rates] will eventually need to rise toward a more neutral level."
Separately, Greenspan told the committee "progress in creating jobs has been limited," despite "vigorous expansion" in the economy. He declined to forecast when job growth might pick up.
"We have been making commitments without focusing on our capability of meeting them," Greenspan said. "And I think it is terribly important to make certain that we communicate to the people who are about to retire what it is they are going to have to live with. And if we promise more than we can actually physically deliver, I think it will be a major blot on our whole fiscal process."
Greenspan did not buy into Democratic plans to repeal some of Bush's tax cuts. Instead, he urged reducing the deficit mainly through spending cuts.
Usually, Fed chairmen do not like to become embroiled in political debates, especially when Congress is likely to do little about Social Security until at least after the election.
But Greenspan, who will be 78 next month, derives clout and independence from his reputation in financial markets. Bush has said he will renominate him as Fed chairman when his current four-year term expires in June. |
