Posted on 11/06/2003 12:59:56 PM PST by Pubbie
Despite a strengthening economic expansion, Federal Reserve Chairman Alan Greenspan on Thursday indicated the central bank will remain slow to raise interest rates.
In his first extensive remarks on the economy since July, Mr. Greenspan acknowledged growth has "accelerated" in recent months. But he said, unlike the previous half century, inflation, at about 1%, has met the Fed's goal of price stability. As a result, "monetary policy is able to be more patient" than in previous expansions.
In his remarks by satellite to the Securities Industry Association, he didn't say interest rates could stay low for a "considerable period." He first made that controversial commitment when he last talked about the economy, during Congressional testimony in July, and the commitment was repeated at the Fed's last three policy meetings. But his preoccupation with the lack of inflation pressure suggests it will take many more months of robust growth for him to start thinking about raising rates.
Mr. Greenspan's message is that "the economy is moving in the right direction, but we are not even close to a point where officials are worried about needing to tighten" monetary policy, said RBS Greenwich Capital economist Steve Stanley in a commentary.
There has been speculation in recent weeks that the surge in economic prospects, highlighted by the third quarter's 7.2% annual growth rate, the best in 19 years, would force the Fed to start signaling an inclination to raise its target for the federal funds rate, now at a 45-year low of 1%. That speculation has grown with increases in interest rates this week by the Bank of England and Reserve Bank of Australia. (See related article.)
But Mr. Greenspan gave no hint that he is inclined to follow suit. Indeed, his discussion of the economic outlook was layered with caveats. While there have been signs that "the labor market may be stabilizing," it comes after two years of exceptional weakness. "Unless hiring picks up and layoffs ease, assuaging the latent job security fears of many of those currently employed," consumers could spend less and save more of their income, which would "hamper the vigor of the expansion." (See related article.)
Furthermore, he noted the strong third-quarter growth was made possible by firms boosting output per worker without hiring more. Growth that comes through more intensive use of existing capital and labor rather than added capital and labor doesn't put pressure on prices and costs. He said the astonishing productivity performance may have been the result both of one-time-only factors, such as exploiting inefficiencies left over from the 1990s, and a permanent increase in productivity growth.
Still, Mr. Greenspan appears to expect both capital spending and hiring to pick up in coming months. Firms have filled much of their sales by running down inventories. Inventory rebuilding and the exhaustion of opportunities to boost productivity efficiencies "seem a combination that could generate a notable pickup in hiring should growth in final sales remain firm."
(Excerpt) Read more at online.wsj.com ...
Again? Still!!! OK
Because the government has no business intervening in the private economy.
Furthermore, just because the prices of carefully selected items remain steady (at least in the short term) does not mean you can arbitrarily double the money supply and not expect to create credit bubbles and other misallocations of resources.
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