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Strategies & Market Trends : LastShadow's Position Trading -- Ignore unavailable to you. Want to Upgrade?

To: Dave Shares who wrote (18027)	7/28/1999 7:02:00 AM
From: LastShadow	Respond to of 43080

Greenspan Returns to Testify in Congress as Questions on Fed Policy Remain By Michael McKee Washington, July 28 (Bloomberg) -- Members of Congress get another chance to try to extract a clear statement of the Federal Reserve's interest rate intentions when Fed Chairman Alan Greenspan returns to Capitol Hill today to testify on economic and monetary policy. The lawmakers, and watching investors, probably won't get exactly what they want from the typically ambiguous Fed leader. Appearing before the House Banking Committee last week, Greenspan said the Fed is both prepared ''to act promptly and forcefully'' to raise interest rates and waiting for ''new data'' to decide whether rates should be raised. Fed watchers were divided about what that meant, and few expect the question to be settled by Greenspan's appearance at 10 a.m. Washington time before the Senate Banking Committee today. ''He'll probably feel content to leave an element of doubt there,'' said Alan Day, who helps oversee about $4 billion at Stratevest Group in Burlington, Vermont. ''He's been critical of complacency in the marketplace. And certainly when he speaks there's no complacency.'' Greenspan's appearance before the House last week and the Senate today fulfill his obligation to inform Congress twice a year about the economy and Fed strategy, his so-called Humphrey- Hawkins testimony. Stocks and bonds fell after Greenspan's comments last week that the Fed's quarter-point increase on June 30 may not be the last needed to cool growth. Greenspan specifically said that the Fed ''did not believe that its recent modest tightening would put the risks of inflation going forward completely into balance.'' Senators' Chance Still, Greenspan said, the Fed's policy-making Open Market Committee ''did not want to foster the impression that it was committed in short order to tighten further.'' Rather, he said, ''It judged that it would need to evaluate the incoming data for more signs'' that inflation could be developing. The responsibility for divining what that means and what could happen at the next FOMC meeting on Aug. 24 will fall on the senators who get to pose questions today. By tradition, the Fed chairman reads the same written testimony in his second Humphrey- Hawkins appearance. However, in answering questions, Greenspan may try to send a signal to investors if he thinks his words last week were misinterpreted. ''He may feel he didn't get something over last week, but my sense is it will be very similar,'' said Senator John Kerry, a Democrat from Massachusetts who said he'll ask Greenspan to discuss the Fed's concerns about labor markets and stock values. Greenspan told House members there are signs inflation could pick up because gross domestic product, a measure of the overall economy, is expanding too fast and labor markets are so tight. The increase in jobs has exceeded the growth of the working- age population by almost half a percentage point this past year, which ''implies that real GDP is growing faster than its potential,'' he said. Even though consumer prices were unchanged in May and June, a further decline in the unemployment rate from a recent range of 4.2 percent to 4.3 percent would be ''one indication that inflation risks were rising,'' Greenspan said. Stock Worries The Fed is also worried the economy could slow if stock markets don't continue ''outsized'' gains, Greenspan told House members. ''The danger is that in these circumstances, an unwarranted, perhaps euphoric, extension of recent developments can drive equity prices to levels that are unsupportable,'' he said. ''Such straying above fundamentals could create problems for our economy when the inevitable adjustment occurs.'' Stocks posted their biggest gains of the month yesterday as investors speculated shares are a good buy as long as interest rates don't rise much further. The Nasdaq Composite Index rose 60.14, or 2.3 percent, to 2679.33, after losing 8.6 percent since July 16. The Standard & Poor's 500 Index gained 15.08, or 1.1 percent, to 1362.84. The Dow Jones Industrial Average climbed 115.88, or 1 percent, to 10,979.04. Political Pawn? As always, the Fed chairman will also be asked to offer his opinions on a variety of issues beyond the immediate economic outlook. House Democrats got Greenspan to say he'd rather see the budget surplus grow than support the $792 billion, 10-year tax cut package advanced by their Republican counterparts -- though he also said he'd support tax cuts rather than additional government spending. The first back-to-back yearly surpluses in more than four decades ''have helped to hold down interest rates and facilitate private spending'' Greenspan said. The tax-cut measure passed the House in spite of Greenspan's comments and is now before the Senate. Kerry said he expects both sides to seek the chairman's support today, though he denies Greenspan is a pawn in the political fight. ''Nobody uses Chairman Greenspan. But clearly his opinion in a straightforward, balanced way is important,'' Kerry said.