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Strategies & Market Trends : Russian Crisis - Is it a buying opportunity? -- Ignore unavailable to you. Want to Upgrade?

To: Jeffrey L. Henken who wrote (159)	9/4/1998 11:43:00 PM
From: Ray Tarke	Read Replies (2) \| Respond to of 175

Greenspan mentions Cut. Greenspan says market turmoil may hurt US economy By Greg Frost BERKELEY, Calif., Sept 4 (Reuters) - Federal Reserve Board Chairman Alan Greenspan warned on Friday that global financial turmoil and Wall Street's volatility may hurt the U.S. economy and suggested he was as inclined to cut interest rates as to raise them. In his first comment on recent tumbling stock prices, the world's most powerful central banker said the Fed now saw a balance of risks facing the U.S. economy between deflationary pressures from international crises and domestic inflation. ''It is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress,'' Greenspan said in a speech at the University of California in Berkeley. Although he did not directly comment on the bank's interest rate policy, Greenspan said it was a time to be cautious. ''Clearly, the history of large swings in investor confidence and equity premiums for rational and other reasons counsels caution in the current context,'' he said. ''We have relearned in recent weeks that just as a bull stock market feels unending and secure as an economy and stock market move forward, so it can feel when markets contract that recovery is inconceivable,'' Greenspan said. ''Both, of course, are wrong. But because of the difficulty imagining a turnabout when such emotions take hold, periods of euphoria or distress tend to feed on themselves,'' he added. Greenspan said that in the spring and early summer of this year Fed policymakers were concerned that the strong U.S. economy would fuel inflationary price pressures and were thinking about raising rates. But Asia's economic slowdown has held down prices in the United States despite robust economic growth. With wage pressures growing and exports declining, companies have seen their profits squeezed and analysts have said this was one reason for the recent stock price tumble. Greenspan said some profit projections had been unrealistic even with productivity gains, which lower costs of doing business, continuing at the high rate of recent years. ''Even if this is indeed the case, and only anecdotal evidence supports it, security analysts' recent projected per share earnings growth of more than 13 percent annually over the next three to five years is unlikely to materialize,'' he said. The Fed has repeatedly warned that tight labor markets could spill over into higher wages and prices. Employment data for August released on Friday showed the economy creating 365,000 jobs and the jobless rate at 4.5 percent. But Greenspan said the fears had not materialized to date. The Federal Open Market Committee, the Fed's policymaking arm, saw the risks at its most recent meeting on Aug. 18 as more balanced between economic slowdown caused by international events and domestic inflation. ''By the time of the Committee's August meeting, the risks had become balanced, and the Committee will need to consider carefully the potential ramifications of ongoing developments since that meeting,'' he said. The Fed appeared earlier this year poised to raise interest rates and as late as July had maintained that bias. The FOMC next meets on Sept. 29, and a number of economists are calling for a rate cut to ward off a global recession. They argued that consumers are likely to curb their purchases as a result of the sharp drop in stock prices over the last two weeks and Greenspan seemed to agree. ''As dislocations abroad mount, feeding back on our financial markets, restraint is likely to intensify,'' he said. Calls for a Fed rate cut also have grown internationally. Brazil's Finance Minister Pedro Malan, in Washington for a meeting of top Latin American finance ministers, said the United States needed to cut rates to aid struggling economies. ''In my opinion, the one idea that should be seriously considered at the next meeting of the U.S. Federal Open Market Committee should be a reduction in U.S. interest rates. That was my suggestion and that of other ministers,'' Malan said at the end of the two-day meeting sponsored by the International Monetary Fund. Regards, R.T