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To: Jon Koplik who wrote (14599)	9/4/1998 8:34:00 PM
From: Jon Koplik	Respond to of 152472

To all - juicy details from the Alan Greenspan speech : September 4, 1998 Fed Concerned About Global Crisis Filed at 8:13 p.m. EDT By The Associated Press SAN FRANCISCO (AP) -- Federal Reserve Chairman Alan Greenspan said Friday that central bankers are growing more concerned about the global financial crisis' impact on the U.S. economy and are just as likely to cut interest rates as raise them. ''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 Friday at the University of California, Berkeley. In the spring and early summer, Federal Reserve policymakers had been more concerned about the threat of renewed inflation in the United States, Greenspan said. At their meetings during this period, they adopted a policy stance signaling they stood ready to raise interest rates at the first sign of significant inflation. But Greenspan revealed in Friday's speech that the same policymakers in their meeting last month decided that the global turmoil posed a growing threat to U.S. prosperity -- and are now just as likely to vote to cut interest rates. The Fed's benchmark federal funds rate, the interest that banks charge each other, has been at 5.5 percent since March 1997. That rate determines the borrowing costs that millions of Americans pay on home-equity and other loans. Greenspan, who in a famous speech in December 1996 warned of ''irrational exuberance'' overtaking the high-flying U.S. stock market, also sought to calm investors who this week watched the Dow Jones industrial average drop 411 points. ''We have relearned in recent weeks that just as a bull stock market feels unending and secure ... so it can feel when markets contract that recovery is inconceivable,'' Greenspan said Friday. ''Both, of course, are wrong.'' ''Periods of euphoria or distress tend to feed on themselves,'' he added. Greenspan was scheduled to meet later Friday with U.S. Treasury Secretary Robert Rubin and Japan's new finance minister to review Japan's efforts to pull itself out of a severe recession. The economic crisis that began a year ago in Asia has in recent weeks claimed another victim -- Russia, which has seen its economy disintegrate after a botched attempt to devalue the ruble. And this week, the ripples have reached closer to the United States, as a number of Latin American markets have plunged. Before the recent market turbulence, many U.S. economists had believed the Federal Reserve was poised to raise interest rates soon, because of worries that low unemployment was putting upward pressure on wages and thus could cause inflation. But for the first six months this year, the consumer price index has risen at an annual rate of only 1.4 percent and Fed policymakers voted to leave interest rates unchanged at the central bank's most recent meeting on Aug. 18. Greenspan's comments Friday were the first indication that the Fed, at its Aug. 18 meeting, had changed its bias on interest rates to a neutral stance. Minutes revealing that decision will not be released until two days after the Fed's next meeting on Sept. 29. The minutes of the July meeting showed that the central bank at that time was still poised to raise short-term interest rates. Officials then saw only a ''very small but growing possibility'' that Asia's problems would trigger an economic downturn in the United States. As market turbulence intensified in the United States this week, a growing number of economists had suggested that the Federal Reserve would soon ride to the rescue by cutting U.S. interest rates. Lower interest rates generally boost an economy's prospects for growth by making it cheaper for businesses and consumers to borrow. Lower U.S. interest rates also could boost the global economy by improving U.S. growth prospects and also lowering the value of the dollar in relation to other countries' currencies. The would make it easier for foreigners to purchase American-made products and services.