The WSJ is reporting a very different view of AG than you have:
"GREENSPAN SAID a small economic slowdown will be necessary to preserve the longest peacetime expansion in U.S. history. The Fed chairman said the economy's "outstanding" performance of 1998 cannot continue indefinitely.
Greenspan Says Continued Expansion Will Require Growth to Slow Down
Dow Jones Newswires
WASHINGTON -- Federal Reserve Chairman Alan Greenspan said
Wednesday he saw few signs of "an appreciable slowdown" in the U.S.
economy in 1999, but he added that a small slowdown will be necessary
to preserve the longest peacetime expansion in the nation's history.
In testimony to the House Ways and Means
Committee, Mr. Greenspan said the U.S.
economy performed in an "outstanding
manner" in 1998, generating robust growth even as inflation remained
tame. But he said the combination of high growth and low inflation cannot
continue indefinitely.
"Some moderation in economic growth, however, might be required to
sustain the expansion," Mr. Greenspan said in prepared remarks. "Through
the end of 1998, the economy continued to grow more rapidly than can be
currently accommodated on an ongoing basis, even with higher,
technology-driven productivity growth."
The economy is estimated to have grown at least 3.5% in 1998, its eighth
year of expansion. Mr. Greenspan's remarks are likely to reinforce market
expectations that the central bank will leave interest rates unchanged in the
near term. Fed policy makers next meet on Feb. 3 and 4. The Fed cut the
key federal-funds rate three times toward the end of 1998.
Mr. Greenspan said Wednesday that recent U.S. economic growth has
shrunk the pool of available labor. Moreover, he said, "while higher
productivity has helped to keep labor cost increases in check, it cannot be
expected to do so indefinitely in ever tighter labor markets."
Still, the chairman said, U.S. policy makers must be wary about enacting
policies that unsettle financial markets. He said the Fed cut interest rates
last year "not to prop up equity prices," but to shield the economy amid
growing risk aversion in financial markets. He said the Fed hadn't planned
to keep cutting rates until the U.S. stock market recovered, "as some have
erroneously inferred."
"Nonetheless, in the current state of financial markets, policy makers are
going to have to be particularly wary of actions that unnecessarily sow
uncertainties, undermine confidence and interfere with the efficient
allocation of capital on which our economic prosperity and asset values
rest," he said.
Mr. Greenspan, who has repeatedly expressed concern that U.S. stock
prices may be rising to unsustainable levels, on Wednesday offered only a
muted warning. "The level of equity prices would appear to envision
substantially greater growth of profits than has been experienced of late,"
he said.
But he suggested the Fed is wary of intervening to bring those prices
down. "All else equal, a flattening of stock prices would likely slow the
growth of [consumer] spending," he said, "and a decline in equity values,
especially a severe one, could lead to a considerable weakening of
consumer demand."
Mr. Greenspan also said the U.S. economy is at risk because of economic
turmoil in Brazil, which last week devalued its currency and stopped
intervening in currency markets to defend it. "The situation in Brazil and its
potential for spilling over to reduce demand in other emerging market
economies also constitute a possible source of downside risk for demand
in the United States," he said.
"So far, markets seem to have reacted reasonably well to the decisions by
the Brazilian authorities to float their currency and redouble efforts at fiscal
discipline," Mr. Greenspan said. "But follow through in reducing budget
imbalances and in containing the effects on inflation of the drop in the value
of the currency will be needed to bolster confidence and to limit the
potential for contagion," he said.
Mr. Greenspan also warned policy makers around the world of the danger
of protectionism amid the world's deepest economic crisis in at least 50
years. "Drift toward protectionist trade policies, which are always so
difficult to reverse, is a much greater threat than is generally understood,"
he said.
"Protectionism was a threat to standards of living when capital asset values
were low relative to income," he said. "It becomes particularly pernicious
in an environment such as today's, when that is no longer the case." |
