ANALYSTS: GREENSPAN CLEARLY REAFFIRMED TIGHTENING BIAS
Futures World News - July 21, 1998 14:26
%FED %ECONOMY %STOCK %CURRENCY %FINANCIAL V%FWN P%FWN
Washington-July 21-FWN--FEDERAL RESERVE CHAIRMAN ALAN Greenspan was uncharacteristically candid today, warning members of the Senate Banking Committee that the risks of a pick-up in inflation--an unwelcome by-product of tight labor markets--"remain significant."
On page one of his semiannual Humphrey-Hawkins testimony to Congress, the Fed chairman said policy action may be needed "to counter any associated tendency for prices to accelerate before it undermines" the current economic expansion.
Analysts said Greenspan's decision to highlight inflation, rather than the weakening manufacturing sector, shows that he is intently focused on upside risks to the economy.
Christopher Rupkey, a senior financial economist at Bank of Tokyo-Mitsubishi in New York, deemed today's comments proof that Fed policy-makers are "not even thinking of easing. They're just going to sit on their hands and point to the risk of inflation," he said.
The markets also appear convinced that lower interest rates are not on the near-term horizon, Rupkey said, pointing to the flattening that took place today in the yield curve. Traditionally, the yield curve flattens when the Fed is tightening, he explained.
Treasury bonds started the day higher but retreated after Chairman Greenspan expressed inflation concerns.
Greenspan's comments "reinforce to the world" that the bias of the Federal Open Market Committee (FOMC) is still toward tightening, said Kathleen Camilli, chief economist at Tucker Anthony in New York.
The Fed's focus is clearly on rising inflation rather than disinflation or deflation, she said. However, today's testimony gave "no intimation of any near-term changes to policy."
PaineWebber economist Maury Harris said Greenspan did little more at today's hearing than reaffirm the FOMC's asymmetric bias toward tightening. Aside from an official Fed comment on the likely effects of the United Auto Workers strike and the prospects for negative economic growth in the second quarter, the chairman's remarks were "not especially surprising," he said. (If you have questions or comments regarding this story, e-mail Susan Stawick at susans@fwn.com) |
