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To: Voltaire who wrote (62179)	1/13/2000 9:55:00 PM
From: Jon Koplik	Read Replies (3) \| Respond to of 152472

To all - WSJ's "take" on the Greenspan speech tonight. January 14, 2000 Greenspan Warns Stock Market Is Pushing Economy to the Limit By JACOB M. SCHLESINGER Staff Reporter of THE WALL STREET JOURNAL WASHINGTON -- U.S. Federal Reserve Chairman Alan Greenspan issued a stark warning that the stock market's surge is pushing the economy beyond its limits, in a speech that said nothing to counter widespread expectations that the central bank will continue next month its campaign to raise interest rates. Still, Mr. Greenspan also used his closely watched address last night before the Economic Club of New York to suggest that the drive may not be as aggressive in the coming months as some analysts have feared. He declared that the process of containing "the wealth-induced excess of demand" is "already well advanced," according to an advance text of his remarks made available here. He specifically noted that corporate-borrowing costs had risen by about a percentage point over the past two years and that the economic "balance" that the Fed is seeking will be struck "through higher borrowing rates." Thursday's address was Mr. Greenspan's latest in a series of attempts to grapple with the booming stock market and the dilemma that it poses for the central bank. Fed officials have insisted repeatedly that they aren't trying to curb the highflying Dow Jones Industrial Average and that they aren't attempting to judge whether or not the market is a bubble. Still, the Fed views its job as attempting to curb economic activity when the pace looks too rapid, and Mr. Greenspan made clear Thursday that he believes the stock market is playing an ever-greater role in pushing growth into overdrive. Stock gains, by making shareholders wealthier, "have tended to foster increases in aggregate demand beyond the increases in supply," he wrote in the text of his speech. "It is this imbalance ... that contains the potential seeds of rising inflationary and financial pressures that could undermine the current expansion." He estimated that the stock market alone was responsible for about one-fourth of the rapid growth of the past three years -- about one percentage point of the 4% annual rise in gross domestic product since late 1996. Serious inflation has yet to emerge despite this rapid, stock-market driven growth. Indeed, Thursday morning, the Labor Department reported that price gains at the wholesale level -- excluding volatile food and energy prices -- had actually slowed in recent months. But Mr. Greenspan made clear that the Fed was willing to act before price pressures emerged. "Regrettably, we at the Federal Reserve do not have the luxury of awaiting a better set of insights" into the impact of soaring financial wealth on the economy, he said. Financial markets have long been braced for the Fed to boost its federal funds rate target by one-quarter percentage point on Feb. 2, following three similar moves last year. But some analysts have suggested that the Fed could increase rates by a more extreme, half point in February, or that it will keep raising rates a quarter point through a series of meetings through next year. In what may have been a not-so-subtle hint to lawmakers and presidential candidates, Mr. Greenspan said the Fed would be more likely to keep rates lower if politicians didn't squander the mounting budget surpluses. "Both the administration and Congress have chosen wisely to allow ... budget surpluses to build," which he said had "absorbed a good part of the excess of potential private demand" by keeping money out of taxpayers' wallets. "I trust that the recent flurry of increased federal government outlays, seemingly made easier by the emerging surpluses, is an aberration," Mr. Greenspan added, perhaps sarcastically. Congress last year broke tight spending caps, and both political parties are now scrambling to carve up projected surpluses for tax cuts or new spending. While his warnings were the most noteworthy part of his prepared remarks, the bulk of Mr. Greenspan's speech was actually devoted to his famous optimism -- his view that, despite some potential warts, the U.S. economy has been transformed for the better by technology in recent years. "The evidence of dramatic innovations -- veritable shifts in the tectonic plates of technology -- has moved far beyond mere conjecture," he said. Copyright ¸ 2000 Dow Jones & Company, Inc. All Rights Reserved.

To: Voltaire who wrote (62179)	1/13/2000 10:51:00 PM
From: Boplicity	Read Replies (1) \| Respond to of 152472

The saving grace is the fact that they don't really know, scary sort of when you think about it. I bet you he feels helpless a little and worried, so much so, that they only area of the economy that he feels he can control is the market. I year of slower stock market expansion, is just what the Dr. order is his mind-set. Now can he slow the market down? Rates, will be going up all year long, till it does. Greg