(17 Feb 2000) English/Nat
U-S Federal Reserve Chairman Alan Greenspan thinks four interest rate hikes haven't slowed the national economy enough for his liking.
On Thursday Greenspan told the House Banking Committee that the threat of inflation is ever-present, and hinted that he'll continue to raise interest rates gradually to keep inflation in check.
Greenspan's comments came shortly after the latest government report showed that inflation had remained at zero throughout January.
Presenting his twice-a-year report to Congress, U-S Federal Reserve Chairman Alan Greenspan declared the current good times unprecedented in his half-century of observing the American economy.
But he cautioned that the threat to the economy posed by inflation would not disappear.
Greenspan warned financial markets to expect further interest rate increases over the coming months as he acts to preserve the current status quo.
Greenspan told the House Banking Committee that while current conditions are remarkable and inflation has remained low, it cannot last unless the growth rate slows to less than the four percent-plus gains of the past three years.
SOUNDBITE: (English)
"There is little evidence that the American economy, which grew more than four percent in 1999, and surged forward at an even faster pace in the second half of the year, is slowing appreciably. At the same time, inflation has remained largely contained, an increase in the overall rate of inflation in 1999 was mainly a result of higher energy prices."
SUPER CAPTION: Alan Greenspan, Chairman, US Federal Reserve
The central bank has been trying to slow the economy since last June, raising key interest rates by a full percentage point in four different hikes.
But Greenspan said Thursday that there is little evidence that those four quarter-point increases have had much impact.
He's now concerned that demand for labour will soon exceed supply.
Greenspan tied his worries to the tight labour markets and fears that workers will begin to demand higher wages that could set off an inflationary spiral.
SOUNDBITE: (English)
"Labour markets, for example, have tightened in recent years as demand has persistently outstripped even accelerating potential supply. As I have noted previously, we cannot be sure in an environment with so little historical precedent, what degree of labour market tortness could begin to push unit costs and prices up more rapidly. We know, however, that there is a limit. And we can be sure that the smaller the pool of people without jobs willing to take them, the closer we are to that limit."
SUPER CAPTION: Alan Greenspan, Chairman, US Federal Reserve
Analysts are predicting that the Federal Reserve Board will boost rates for a fifth time on March 21st, and could even raise rates a sixth time in May.
However, Greenspan was optimistic in his economic forecast for the year 2000, predicting that the gross domestic product will expand by about 3-point-five percent this year.
SOUNDBITE: (English)
"Thus, we cannot afford to be lulled into letting down our guard on budgetary matters. Although the outlook is clouded by a number of uncertainties, the central tendencies of the projections of the board members and reserve bank presidents imply continued good economic performance in the United States. Most of them expect economic growth to slow somewhat this year, easing into the three-and-a-half to three-and-three-quarter percent area."
SUPER CAPTION: Alan Greenspan, Chairman, US Federal Reserve
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