US Federal Reserve wary of impending inflation

United States Federal Reserve chair, Alan Greenspan, has warned the US economy, though still robust, faces a growing threat of inflation that could imperil national prosperity.

In his semi-annual report to Congress on US economic prospects, Mr Greenspan told the House of Representatives Banking Committee that the Fed would remain vigilant for signs of inflationary overheating, in an economy now in its ninth year of expansion.

Mr Greenspan said the very sources of the expansion, notably an increase in labor productivity, are engendering a set of imbalances that, unless contained, threaten the US's continuing prosperity.

He told lawmakers that despite rising interest rates over the last two years, the risks still seem to be weighted on the side of building inflation pressures.

"However to date, interest-sensitive spending has remained robust and the Federal Open Market Committee will have to stay alert for signs that real interest rates have not yet risen enough, to bring the growth of demand into line with that of potential supply," he said.

His comments bolstered predictions by some analysts that the Open Market Committee would add another quarter of a point to short-term interest rates when it meets on March 21.

The committee earlier this month raised its benchmark federal funds rate a quarter of a point to 5.75 per cent.

But Greenspan said that for the moment, inflation had remained "largely contained" in the face of declining labor costs and a continuing acceleration in productivity, which increased 3.25 per cent last year.

After expanding 4 per cent in 1999, growth this year is expected to throttle back to 3.5 - 3.75 per cent, with unemployment in the range of 4 - 4.25 per cent.

Inflation this year is projected at 1.75 - 2 per cent, just below the 1999 rate.

The biggest cloud on the horizon, Greenspan told the committee, is the shrinking pool of available workers, which sooner or later will force employers to raise wages in order to attract and retain qualified personnel.

"At some point in the continuous reduction in the number of workers willing to take jobs ... wage increases must rise even above impressive gains in productivity," he said.

"This would intensify inflationary pressure or squeeze profit margins, with either outcome capable of bringing our prosperity to an end."

In the recent past, inflation has been held in check in the United States by weak foreign economies and a strong dollar, which depressed exports and encouraged cheaper imports.

But as foreign economies start to recover, the effect of the previous appreciation of the dollar should wane, augmenting demand on US resources and lessening one source of downward pressure on US prices.

Elsewhere in his remarks Greenspan reiterated a call for the federal budget surplus to be applied to reducing the US public debt.

Link

http://www.abc.net.au/news/newslink/nat/newsnat-18feb2000-8.htm

-- Carl Jenkins (Somewherepress@aol.com), February 17, 2000

Answers

What inflation? I thought $30+ per barrel oil was not only 'cheap' but actually GOOD for us. (And especially "for the Children"). Most truckers seem absolutely thrilled to pay $2.00+ for a gal. of diesel. They wouldn't dream of passing their higher fuel costs along in the form of higher prices to consumers...just like the airline didn't!

Inflation...better watch your pocketbook...you ain't nothing yet! And Mr. GreasePan is ready to rocket up your interest rates. If'n you can convert that variable mortage rate to a fixed rate--do it quickly!

-- Observer (OfHigherPricesComingAt@Us.com), February 17, 2000.

Ahh,our Collection of private Bankers(affectionately called "Federal Reserve")are "wary"of Inflation,are they??My,my,how did they finally figure that out?Have most of the big Time "Investors"given the "Feds" the Signal to be publicly "wary", now,that they have cashed in all that Garbage Toilet Paper on Wall Street for REAL Money??? All Your Retirement,401K's,and Pension Funds will eventually buy You a modest Funeral,minus the Flowers!!

-- Optimist from Way back (byebye@cash.ooo), February 18, 2000.