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To: James Thompson who wrote (15760)	1/13/2000 9:46:00 PM
From: Dr. D	Read Replies (1) \| Respond to of 19700

Greenspan Warns About Imbalances Associated Press Online - January 13, 2000 20:46 Jump to first matched term By MARTIN CRUTSINGER AP Economics Writer WASHINGTON (AP) - Americans, enjoying the most prosperous times in a generation, have fueled a remarkable economic boom, but there are dangers that growing imbalances could derail the economic expansion, Federal Reserve Chairman Alan Greenspan said Thursday. Speaking to the Economic Club of New York, Greenspan expressed an upbeat assessment of the economy's current performance, noting that next month it will become the longest expansion in U.S. history, surpassing the 106 months of uninterrupted growth in the 1960s. "There can be little argument that the American economy as it stands at the beginning of a new century has never exhibited so remarkable a prosperity for at least the majority of its citizens," Greenspan said in the speech, copies of which were released in Washington. However, Greenspan also repeated worries he has voiced before that the Federal Reserve must be alert to the growing imbalances between continued strong consumer demand, bolstered by Americans' soaring stock portfolios, and the dwindling supply of available workers, given that unemployment is now at a 30-year low. In addition to concerns about rising inflation pressures, Greenspan also repeated concerns he has expressed in the past that the huge runup in stock prices could without warning reverse itself. The Federal Reserve has raised interest rates three times in the past six months in an effort to slow the economy and relieve pressures on tight labor markets before they trigger inflationary wage demands. While it is widely expected that the Fed will raise rates when they meet again on Feb. 1-2, Greenspan did not specifically address that issue, saying only that the central bank is always forced to make interest-rate decisions based on incomplete evidence of where the economy is headed. "Regrettably, we at the Federal Reserve do not have the luxury of awaiting a better set of insights into this process," Greenspan said in the speech. "Indeed, our goal, in responding to the complexity of current economic forces, is to extend the expansion by containing its imbalances." In all of his comments, Greenspan was careful to balance his worries about the future with expressions that some fundamentally beneficial changes are occurring in the economy that have given a strong boost to U.S. productivity. Greenspan said that when economists look back at the current period a decade from now, they may well conclude "at the turn of the millennium, the American economy was experiencing a once-in-a-century acceleration of innovation which propelled forward productivity, output, corporate profits and stock prices at a pace not seen in generations, if ever." But Greenspan also said there could be an alternative view of the current period when viewed in a decade. "Alternatively, that 2010 retrospective might well conclude that a good deal of what we are currently experiencing was just one of the many euphoric speculative bubbles that have dotted human history." That comment echoed Greenspan's famous worry, voiced in December 1996, that investors might be in the grip of "irrational exuberance." At the time, the Dow Jones industrial average was trading around 6,400. Despite worries expressed since that time by Greenspan about market valuations, the Dow closed on Thursday at a new record of 11,582.43. In his Thursday speech, Greenspan said that the boom in stock prices, by bolstering consumer spending, has probably added around 1 percentage point annually to economic growth since 1996. The economy during this period has been growing at annual rates of around 4 percent. marketwatch.newsalert.com