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To: accountclosed who wrote (21070)	2/23/1999 12:42:00 PM
From: Cynic 2005	Read Replies (1) \| Respond to of 86076

I don't want to read all the crap. It is from a report in one of the "yellow" journals - WSJ, to be exact! -g-: ------------ February 23, 1999 -------------------------------------------------------------------------------- Greenspan Worries About Stocks And Says Economy Is 'Stretched' Dow Jones Newswires WASHINGTON -- Federal Reserve Chairman Alan Greenspan, describing the U.S. economy as "stretched" after eight years, expressed concern that stock prices may be too high and said the central bank is poised to either lower or raise interest rates quickly as conditions warrant. Mr. Greenspan, in his semi-annual Humphrey-Hawkins testimony to Congress, did not suggest a rate increase is imminent, saying the Fed must be ready to raise or cut rates if necessary. But he told the Senate Banking Committee the Fed must "evaluate ... whether the full extent of the policy easings undertaken last fall to address the seizing-up of financial markets remains appropriate as those disturbances abate." Amid a looming credit crunch in global financial markets, the Fed cut the key Funds rate three times, lowering it to 4.75%. The cuts ensured the U.S. economy slowed not at all despite the global economic crisis, generating growth of nearly 4% in 1998. "After eight years of economic expansion, the economy appears stretched in a number of dimensions, implying considerable upside and downside risk to the economic outlook," Mr. Greenspan said. "In light of all these risks, monetary policy must be ready to move quickly in either direction should we perceive imbalances and distortions developing that could undermine the economic expansion." Mr. Greenspan said he remains worried about rising stock prices, warning that a sudden decline could hurt U.S. economic health. He said "equity prices are high enough to raise questions about whether shares are overvalued." "Investors appear to have incorporated into current equity price levels both robust profit expectations and low compensation for risk," he said. "A downward correction to stock prices, and an associated increase in the cost of equity capital, could compound a slowdown in growth of capital spending." Mr. Greenspan also said he is worried about the widening U.S. current-account deficit, which he called "disquieting." He said "foreigners will not want to raise indefinitely the share of their portfolios in claims on the United States. Should the sustainability of the buildup of our foreign indebtedness come into question, the exchange value of the dollar may well decline, imparting pressures on prices in the United States." He said that although inflation is expected to remain moderate in 1999, rising to a range of 2% to 2.5% in the Fed's central-tendency forecast, it could surge later unless U.S. labor productivity increases. "Although the pace of productivity increase has picked up in recent years, the extraordinary strength of demand has meant that the substitution of capital for labor has not prevented us from rapidly depleting the pool of available workers," he said. "This worker depletion constitutes a critical upside risk to the inflation outlook, because it presumably cannot continue for very much longer without putting increasing pressure on labor markets and on costs." Mr. Greenspan said the U.S. also remains vulnerable to financial contagion from abroad, although he said the risk of contagion from Brazil has been "significantly reduced" and other crisis-hit countries such as Brazil and South Korea are starting to show signs of economic recovery. "Although financial contagion elsewhere has been limited to date, more significant knock-on effects in financial markets and in the economies of Brazil's important trading partners, including the United States, are still possible," he said. "Moreover, the economies of several of our key industrial trading partners have shown evidence of weakness, which if it deepens could further depress demands for our exports."