Greenspan: Economy Best in 50 Years
By Martin Crutsinger
AP Economics Writer
Wednesday, June 10, 1998; 11:45 a.m. EDT
WASHINGTON (AP) -- Federal Reserve Chairman
Alan Greenspan, calling current U.S. economic
conditions the best in his 50-year career,
signaled today that the central bank saw no
need to end the party by raising interest
rates.
Greenspan cited an unusual amount of
uncertainty because of the continuing economic
turmoil in Asia. But so far, he said, the
American economic expansion, now in its eighth
year, has not been threatened.
''The current economic performance, with its
combination of strong growth and low inflation,
is as impressive as any I have witnessed in my
near half-century of daily observation of the
American economy,'' Greenspan said in testimony
before the congressional Joint Economic
Committee.
Greenspan noted that even with unemployment
falling to 4.3 percent, the lowest level in 28
years, and growth spurting ahead at a 4.8
percent rate in the first quarter, inflation
had actually declined this year.
He called the combination of strong growth and
low unemployment ''extraordinary.'' He said
there were signs consumer prices were beginning
to rise at a slightly faster pace in recent
months, but he termed the pickup ''quite
moderate overall.''
While indicating that Fed policy-makers would
remain alert should price pressures intensify,
Greenspan said the central bank saw no
immediate threat in this area.
''We at the Federal Reserve, recognizing the
powerful forces of productivity growth and
global restraint on inflation, have not
perceived to date the need to tighten policy in
response to strong demand,'' he said.
These comments were likely to cheer financial
markets. Investors had grown concerned in late
April that the central bank might believe the
economy was growing too quickly and growth
would have to be slowed to keep inflation under
control.
Those worries were heightened by a leak in late
April that the central bank had at its March
meeting changed its tilt from neutral to
leaning toward higher rates.
That unusual leak, which was confirmed when the
central bank released minutes of the March
meeting, heightened worries in financial
markets. However, various economists noted that
recent public statements by other Fed officials
and Greenspan seemed to indicate a continuing
belief that there was no need to raise rates at
the moment, given the good inflation
performance and continuing uncertainties about
the Asian economic crisis.
On Asia, Greenspan said the financial turmoil
in that region had caused the U.S. trade
deficit to widen significantly but that had
been offset by the continued strong domestic
demand. He cautioned that ''uncertainties about
the degree of restraint that will be coming
from abroad remain substantial'' in large part
because it is impossible to tell how quickly
the Asian nations will recover.
Greenspan, who in December 1996 wondered
whether ''irrational exuberance'' was pushing
stock prices to unreasonable levels, did not
repeat that concern today. But he said
''investors seem to be expecting that low
inflation and stronger productivity growth will
allow the extraordinary growth of profits to be
extended to the distant future.''
As in previous appearances before Congress,
Greenspan repeated that he believed the U.S.
economy had entered a new stage in which
productivity, output per hour of work, was
beginning to accelerate after two decades of
weakness. But he cautioned that rising
productivity alone would not be enough to keep
inflationary pressures at bay if the demand for
workers continued to outstrip the supply.
Greenspan said he expected the U.S. economy
would slow in coming months, in part because of
the need to work down a huge buildup in unsold
inventories in the first three months of the
year, and the continuing Asian impact on the
trade deficit.
But he said, ''If developments such as these do
not bring labor demand into line with its
sustainable supply, tighter economic policy may
be necessary to help guard against a buildup of
pressures that could derail the current
prosperity.''
c Copyright 1998 The Associated Press
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