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To: Rob S. who wrote (11114)	7/21/1998 7:33:00 PM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164684

ANALYSTS: GREENSPAN CLEARLY REAFFIRMED TIGHTENING BIAS Futures World News - July 21, 1998 14:26 %FED %ECONOMY %STOCK %CURRENCY %FINANCIAL V%FWN P%FWN Washington-July 21-FWN--FEDERAL RESERVE CHAIRMAN ALAN Greenspan was uncharacteristically candid today, warning members of the Senate Banking Committee that the risks of a pick-up in inflation--an unwelcome by-product of tight labor markets--"remain significant." On page one of his semiannual Humphrey-Hawkins testimony to Congress, the Fed chairman said policy action may be needed "to counter any associated tendency for prices to accelerate before it undermines" the current economic expansion. Analysts said Greenspan's decision to highlight inflation, rather than the weakening manufacturing sector, shows that he is intently focused on upside risks to the economy. Christopher Rupkey, a senior financial economist at Bank of Tokyo-Mitsubishi in New York, deemed today's comments proof that Fed policy-makers are "not even thinking of easing. They're just going to sit on their hands and point to the risk of inflation," he said. The markets also appear convinced that lower interest rates are not on the near-term horizon, Rupkey said, pointing to the flattening that took place today in the yield curve. Traditionally, the yield curve flattens when the Fed is tightening, he explained. Treasury bonds started the day higher but retreated after Chairman Greenspan expressed inflation concerns. Greenspan's comments "reinforce to the world" that the bias of the Federal Open Market Committee (FOMC) is still toward tightening, said Kathleen Camilli, chief economist at Tucker Anthony in New York. The Fed's focus is clearly on rising inflation rather than disinflation or deflation, she said. However, today's testimony gave "no intimation of any near-term changes to policy." PaineWebber economist Maury Harris said Greenspan did little more at today's hearing than reaffirm the FOMC's asymmetric bias toward tightening. Aside from an official Fed comment on the likely effects of the United Auto Workers strike and the prospects for negative economic growth in the second quarter, the chairman's remarks were "not especially surprising," he said. (If you have questions or comments regarding this story, e-mail Susan Stawick at susans@fwn.com)

To: Rob S. who wrote (11114)	7/21/1998 7:39:00 PM
From: umbro	Read Replies (1) \| Respond to of 164684

Al Greenspan's Humphrey-Hawkins testimony can be found here: bog.frb.fed.us This is the closest quote that I could find, that related to high stock prices: To a considerable extent, investors seem to be expecting that low inflation and stronger productivity growth will allow the extraordinary growth of profits to be extended into the distant future. Indeed, expectations of earnings growth over the longer term have been undergoing continual upward revision by security analysts since early 1995. These rising expectations have, in turn, driven stock prices sharply higher and credit spreads lower, perhaps in both cases to levels that will be difficult to sustain unless the virtuous cycle continues. In any event, primarily because of the rise in stock prices, about $12-1/2 trillion has been added to the value of household assets since the end of 1994. Probably only a few percent of these largely unrealized capital gains have been transformed into the purchase of goods and services in consumer markets. But that increment to spending, combined with the sharp increase in equipment investment, which has stemmed from the low cost of both equity and debt relative to expected profits on capital, has been instrumental in propelling the economy forward.