Wolverine
09 Jun 2004, 05:43 AM
http://www.enquirer.com/editions/2004/06/09/biz_greenspan09.html
Wednesday, June 9, 2004
Greenspan obliquely suggests higher rates
--------------------------------------------------------------------------------
Fed will likely be able to pursue gradual course, he predicts
By Jeannine Aversa
The Associated Press
WASHINGTON - Federal Reserve Chairman Alan Greenspan says policy-makers probably can boost interest rates gradually to head off inflation, but he's not ruling out more aggressive action - a strong signal the Fed is poised to raise rates this month for the first time in four years.
For nearly a year, a key short-term interest rate used by the Fed to influence economic activity has been at 1 percent, a 46-year low. With the economy now on firm footing, the support provided by such ultralow rates "will become increasingly unnecessary over time," Greenspan told an international monetary conference Tuesday.
Greenspan said the Federal Open Market Committee - the group that sets interest rate policy in the United States - is still of the view that any upcoming rate increases would probably be at a "measured" pace. That assessment, he said, was made on the policy-makers' best judgment of how economic and financial forces will evolve in the months ahead.
"Should that judgment prove misplaced, however, the (committee) is prepared to do what is required to fulfill our obligations to achieve the maintenance of price stability so as to ensure maximum sustainable economic growth," said Greenspan, who spoke via satellite to the conference in London.
Greenspan expressed concern over high energy prices and noted that inflation is now stirring after a long hibernation. But he also said productivity gains should help prevent inflation from getting out of hand.
"I think he's trying to say the Fed isn't behind the curve in fighting inflation," said Stuart Hoffman, chief economist at PNC Financial Services Group. "It looks like rates will go up at the end of this month."
Most economists believe Greenspan and his colleague will raise rates by one-quarter percentage point on June 30. A few, however, are forecasting a half-point increase. Greenspan didn't say what the Fed would do at the June meeting.
On Wall Street, investors appeared to welcome Greenspan's assessment of economic conditions. The Dow Jones industrials gained 41.44 points to close at 10,432.52.
During a question-and-answer period, Greenspan suggested that Fed policy-makers are hopeful that the United States will have a smooth economic recovery, which would bode well for a gradual rise in interest rates. "But just remember forecasting is forecasting," he cautioned.
Now that the economy and companies' profits have recovered, some businesses are finding it easier to raise prices.
In the first four months of this year, consumer prices rose at an annual rate of 4.4 percent, compared with a 1.9 percent increase last year. Core prices - excluding volatile food and energy - also picked up steam. So far this year, they went up at a rate of 3 percent, outpacing the 1.1 percent rise for 2003.
Meanwhile, labor costs, driven mostly by skyrocketing benefits costs, also are on the rise.
"Greenspan is certainly not ready to push the inflation panic button," said Steve Stanley, chief economist at RBS Greenwich Capital. "But his attitude seems to be more open-minded."
Fears of losing customers should dissuade businesses from fully passing along the higher labor, energy and other costs to consumers, said Greenspan.
"To date, the aforementioned costs pressures have been relatively subdued," he said. "Nonetheless, the persistence of the rise in energy prices is a worrisome element in the cost picture."
"The recent modest declines in oil and natural gas prices may or may not signal a trend, but are nonetheless welcome," Greenspan said.
Analysts don't believe inflation currently threatens the recovery, but the upward pressure is a big change in the pricing climate from a year ago.
Wednesday, June 9, 2004
Greenspan obliquely suggests higher rates
--------------------------------------------------------------------------------
Fed will likely be able to pursue gradual course, he predicts
By Jeannine Aversa
The Associated Press
WASHINGTON - Federal Reserve Chairman Alan Greenspan says policy-makers probably can boost interest rates gradually to head off inflation, but he's not ruling out more aggressive action - a strong signal the Fed is poised to raise rates this month for the first time in four years.
For nearly a year, a key short-term interest rate used by the Fed to influence economic activity has been at 1 percent, a 46-year low. With the economy now on firm footing, the support provided by such ultralow rates "will become increasingly unnecessary over time," Greenspan told an international monetary conference Tuesday.
Greenspan said the Federal Open Market Committee - the group that sets interest rate policy in the United States - is still of the view that any upcoming rate increases would probably be at a "measured" pace. That assessment, he said, was made on the policy-makers' best judgment of how economic and financial forces will evolve in the months ahead.
"Should that judgment prove misplaced, however, the (committee) is prepared to do what is required to fulfill our obligations to achieve the maintenance of price stability so as to ensure maximum sustainable economic growth," said Greenspan, who spoke via satellite to the conference in London.
Greenspan expressed concern over high energy prices and noted that inflation is now stirring after a long hibernation. But he also said productivity gains should help prevent inflation from getting out of hand.
"I think he's trying to say the Fed isn't behind the curve in fighting inflation," said Stuart Hoffman, chief economist at PNC Financial Services Group. "It looks like rates will go up at the end of this month."
Most economists believe Greenspan and his colleague will raise rates by one-quarter percentage point on June 30. A few, however, are forecasting a half-point increase. Greenspan didn't say what the Fed would do at the June meeting.
On Wall Street, investors appeared to welcome Greenspan's assessment of economic conditions. The Dow Jones industrials gained 41.44 points to close at 10,432.52.
During a question-and-answer period, Greenspan suggested that Fed policy-makers are hopeful that the United States will have a smooth economic recovery, which would bode well for a gradual rise in interest rates. "But just remember forecasting is forecasting," he cautioned.
Now that the economy and companies' profits have recovered, some businesses are finding it easier to raise prices.
In the first four months of this year, consumer prices rose at an annual rate of 4.4 percent, compared with a 1.9 percent increase last year. Core prices - excluding volatile food and energy - also picked up steam. So far this year, they went up at a rate of 3 percent, outpacing the 1.1 percent rise for 2003.
Meanwhile, labor costs, driven mostly by skyrocketing benefits costs, also are on the rise.
"Greenspan is certainly not ready to push the inflation panic button," said Steve Stanley, chief economist at RBS Greenwich Capital. "But his attitude seems to be more open-minded."
Fears of losing customers should dissuade businesses from fully passing along the higher labor, energy and other costs to consumers, said Greenspan.
"To date, the aforementioned costs pressures have been relatively subdued," he said. "Nonetheless, the persistence of the rise in energy prices is a worrisome element in the cost picture."
"The recent modest declines in oil and natural gas prices may or may not signal a trend, but are nonetheless welcome," Greenspan said.
Analysts don't believe inflation currently threatens the recovery, but the upward pressure is a big change in the pricing climate from a year ago.