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Technology Stocks : Earnings: Semiconductor -- Ignore unavailable to you. Want to Upgrade?

To: Kirk © who wrote (209)	11/6/2003 4:26:40 PM
From: 2MAR$	Read Replies (1) \| Respond to of 266

Greenspan Says Deflation Is Greater Risk Than Inflation (The Master of Minimalism !) hehe Thu Nov 6,11:23 AM ET By Deborah Lagomarsino WASHINGTON -- The U.S. economy has picked up steam as tax cuts have boosted consumer spending and the labor market is firming, but Federal Reserve (news - web sites) policy makers are in no rush to raise rates as inflation remains low, Fed Chairman Alan Greenspan (news - web sites) said Thursday. Even though the U.S. economy is gathering momentum, firms show little evidence that they are gaining "appreciable" pricing power and deflation is still a greater risk than inflation, Mr. Greenspan said. "In these circumstances, monetary policy is able to be more patient. That said, no central bank can ever afford to be less than vigilant about the prospects for inflation," Mr. Greenspan said in prepared remarks to the Securities Industries Association annual meeting in Florida. Mr. Greenspan was optimistic about the prospects for greater job growth, but noted that households remain worried about their job prospects and companies need to be convinced that the economic recovery is sustainable before they ramp up hiring. "The odds, however, do increasingly favor a revival in job creation," said Mr. Greenspan, who delivered his remarks to the conference via satellite. <font size=4> The surge in final demand in recent months has been met in part by firms drawing down inventories. Any swing from inventory liquidation to accumulation would "significantly" boost growth, Mr. Greenspan said. "Efforts to rebuild inventories and a dwindling pool of possible efficiencies seem a combination that could generate a notable pickup in hiring should growth in final sales remain firm," he said. <font size=2> In recent weeks there have been some signs that the labor market "may be stabilizing," Mr. Greenspan said. The Labor Department (news - web sites) said earlier Thursday that the number of U.S. workers filing first-time applications for unemployment benefits plunged to a 34-month low last week, further evidence of a firming labor market. Mr. Greenspan cautioned, though, that for the job market to improve further, businesses must become more confident that the economic rebound won't fizzle out. "If businesses are to spend and hire more vigorously, they will need to be convinced that economic growth can be sustained beyond the short run," Mr. Greenspan said. "One prominent concern is that if the labor market remains weak, household confidence will suffer, with detrimental consequences for spending," he said. Mr. Greenspan acknowledged that the third-quarter's 7.2% growth pace is " obviously a pace not sustainable over the long run." Most of the gain in after- tax personal income in the third quarter was due to the tax cuts, he said. Real after-tax personal income rose at a more than 7% annual rate in the third quarter. "Economic activity perked up in late spring and then accelerated further this summer as tax cuts provided a substantial boost to the disposable income of households," Mr. Greenspan said. Mr. Greenspan again warned about the negative consequences that spiraling budget deficits could have on the U.S. economy in the longer run. "The foregoing relatively optimistic short-term outlook for the U.S. economy is playing out against a backdrop of growing longer-term concern in financial markets about our federal budget," Mr. Greenspan said. He cited the Congressional Budget Office (news - web sites)'s projections for budget deficits throughout the remainder of the decade, a sharp turnaround from the large and growing surpluses of just a few years ago. "Recent budget deliberations are not encouraging. The current debate appears to be about how much to cut taxes or how much to increase spending. No significant constituency seems to support taking the actions that will be necessary to move toward, and one hopes achieve, budget balance," Mr. Greenspan said. As he has in the past, Mr. Greenspan emphasized that budget-deficit worries will only intensify as the baby-boom generation retires. Budget simulations by the CBO and the Office of Management and Budget suggest the rapid increase in budget deficits that would occur under current law as the baby boomers retire "could set in motion an unsustainable dynamic in which large deficits result in growing interest payments that augment deficits in future years," Mr. Greenspan said. "Such a development could have notable, destabilizing effects on the economy," he warned. -By Deborah Lagomarsino, Dow Jones Newswires; 202-862-9255; deborah.lagomarsino@dowjones.com