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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: Frederick Langford who wrote (108971)	7/21/2000 1:16:59 AM
From: 2MAR$	Respond to of 120523

Greenspan Signals Rate Boosts May End, but Keeps Open Mind By JACOB M. SCHLESINGER Staff Reporter of THE WALL STREET JOURNAL WASHINGTON -- Federal Reserve Chairman Alan Greenspan assiduously kept his options open for monetary policy over the next few months, saying he wasn't ready to declare a formal end to the central bank's yearlong campaign of raising interest rates. Complex Challenges Greenspan testifies on Capitol Hill and comments on nontech manufacturing companies being hit harder by interest-rate rises. "It is much too soon to conclude" that "concerns" about inflationary pressures "are behind us," Mr. Greenspan said in his semiannual report to Congress. "We cannot yet be sure that the slower expansion" evident in recent economic data "will persist," he added. At the same time, however, Mr. Greenspan suggested that if trends showing economic moderation continue -- and he gave a long list of reasons why he suspected they would -- the Fed is unlikely to raise rates at its Aug. 22 meeting or beyond. Mr. Greenspan made clear to the Senate Banking Committee that as long as the economy conclusively cooled a bit, he was comfortable with the unemployment rate resting at its current three-decade low. Some of the more hawkish members of the Fed's rate-setting committee have argued that the central bank would have to push the jobless rate up significantly in order to keep inflation in check, implying a need for much higher rates even if growth slows. Mr. Greenspan publicly weighed in on the dovish side of this debate that has been intensifying inside the Fed. Do "you believe that you can maintain price stability ... with unemployment at 4%?" asked Republican Sen. Connie Mack of Florida. "I suspect yes," Mr. Greenspan answered, though he acknowledged that "the evidence ... is not yet of sufficient persuasiveness to convince everybody." Financial markets rallied on the testimony, playing down Mr. Greenspan's "vigilance" and seizing on his unexpected "cautious optimism," economists at Credit Suisse First Boston wrote in a report. After the Fed chairman's remarks, a futures market that bets on central-bank moves lowered the probability of a rate increase next month from higher than 50% to roughly one in three. The Dow Jones Industrial Average and the Nasdaq Composite Index each rose more than 100 points Thursday. Listen to Greenspan's testimony before the Senate Banking Committee, from Hearings.com. The key to future Fed decisions rests in the raft of economic data to be released over the coming month. The optimists are betting that the reports, especially the Aug. 4 look at the July labor market, will show that the mild spring slowdown was more than a fluke. Mr. Greenspan indicated that he thought that was likely the case, citing "a number of factors that may be exerting more persistent restraint." The first was the sideways drift of the stock market in recent months -- at least until his performance touched off a rally. He noted the damping effect on consumer spending of higher interest rates and higher energy prices, which he likened to an annual tax of $75 billion, or 1% of income. The Fed chairman also speculated that after years of surging demand for big-ticket items like homes and cars, the market may simply be saturated. The Fed's Outlook Below, a range of forecasts by the 17 Federal Reserve Board members and regional bank presidents: 2000 2001 GDP 3.75-5.00% 2.50-4.00% Inflation* 2.00-2.75% 1.75-3.00% Unemployment 4.00-4.25% 4.00-4.50% *Personal Consumption Expenditures Price Index Source: Federal Reserve Mr. Greenspan made clear that he and other Fed officials don't feel that the slowdown needs to be terribly severe, mainly because accelerating productivity, or output per worker hour, has raised the economy's speed limit. "So far there is little evidence to undermine the notion" that the productivity surge is for real, he said. Still, the ever-cautious Fed chairman sprinkled his remarks with qualifiers. He noted with some concern that inflation, even excluding energy, "has picked up." He listed some red flags that could push the Fed back into raising rates, such as a further rise in prices or even a rise in consumer expectations of inflation. And while saying he is comfortable with unemployment where it is, he said any further declines would make him nervous. Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com