Warham
06-09-2005, 04:52 PM
Update 7: Greenspan Says Economy Is on Firm Footing
06.09.2005, 03:20 PM
The economy is on "reasonably firm footing" and isn't fanning worrisome inflation, Federal Reserve Chairman Alan Greenspan told lawmakers Thursday.
The Fed chief, in his most extensive remarks on the economy since February, gave a largely upbeat assessment of the country's economic health to Congress' Joint Economic Committee.
Greenspan didn't signal a shift in the Fed's campaign to tighten credit - as some analysts thought possible. Instead, he repeated Fed policy-makers' stance that short-term interest rates can be raised at a pace that is likely to be "measured." Analysts have come to view that as gradual, quarter-point bump-ups.
Over the past year, the pace of economic activity has "alternatively paused and quickened," an uneven expansion that to a significant degree is related to the impact of gyrating energy prices, Greenspan said.
A recent pickup in economic indicators, however, suggested the economic pothole the country hit in early spring wasn't a harbinger of "a more serious slowdown," Greenspan said.
To keep the economy and inflation on an even keel, the Fed has boosted rates eight times - each in quarter-point increments - since June 2004. Analysts expect another increase June 30.
After that, opinions are mixed. Some believe the Fed will keep pushing rates higher through much of this year. Others think the Fed might pause temporarily in the later summer or early fall.
"The bottom line is that Greenspan is in no way signaling that the Fed's tightening ballgame against inflation is nearly over," said Stuart Hoffman, chief economist at PNC Financial Services Group.
A mixed employment report, released by the government last week, helped to fuel speculation that the Fed's credit-tightening campaign might slow or possibly stop.
Greenspan, however, clicked off statistics including the unemployment rate's dip to 5.1 percent in May, the lowest since September 2001, to buttress his point that the economy is in good shape.
"The U.S. economy seems to be on a reasonably firm footing, and underlying inflation remains contained," he said.
Republicans and Democrats, meanwhile, differ on how the economy is faring.
"I need more evidence to be convinced that we have a robust economic recovery," especially in terms of job creation, said Rep. Carolyn Maloney, D-N.Y.
But Rep Jim Saxton, R-N.J., the committee's chairman, said "overall economic conditions remain positive."
Addressing the red-hot housing market, Greenspan said that while rapidly rising home prices probably won't lead to a national price bubble, there appear to be signs of "froth" in some local markets.
Still, if house prices were to decline in some local markets, Greenspan doubted that would have "substantial" implications for the economy.
But the dramatic increase in interest-only mortgages and the introduction of relatively exotic forms of adjustable-rate mortgages are of concern, Greenspan said: "The apparent froth in housing markets may have spilled over into mortgage markets."
One major factor contributing to the hot housing market is the low interest rate on the 10-year Treasury note, which influences longer-term mortgage rates.
Long-term rates have been falling even as the Fed has been pushing up short-term rates, a divergence Greenspan said is "clearly without recent precedent." The 10-year Treasury note is now around 4 percent, down from 4.8 percent when the Fed started raising short-term rates a year ago.
Greenspan said the unusual divergence of long-term and short-term rates is happening not only in the United States but in other countries, a puzzling phenomenon.
Among the theories Greenspan himself has floated and then discounted is that the low long-term rates are a sign of global economic weakness. But such rates were falling in 2004 when the global economy was growing at a sizable clip, he pointed out.
"The weakness argument has a certain credible ring to it, but when you begin to look at the details of the argument, it becomes less persuasive," Greenspan said.
06.09.2005, 03:20 PM
The economy is on "reasonably firm footing" and isn't fanning worrisome inflation, Federal Reserve Chairman Alan Greenspan told lawmakers Thursday.
The Fed chief, in his most extensive remarks on the economy since February, gave a largely upbeat assessment of the country's economic health to Congress' Joint Economic Committee.
Greenspan didn't signal a shift in the Fed's campaign to tighten credit - as some analysts thought possible. Instead, he repeated Fed policy-makers' stance that short-term interest rates can be raised at a pace that is likely to be "measured." Analysts have come to view that as gradual, quarter-point bump-ups.
Over the past year, the pace of economic activity has "alternatively paused and quickened," an uneven expansion that to a significant degree is related to the impact of gyrating energy prices, Greenspan said.
A recent pickup in economic indicators, however, suggested the economic pothole the country hit in early spring wasn't a harbinger of "a more serious slowdown," Greenspan said.
To keep the economy and inflation on an even keel, the Fed has boosted rates eight times - each in quarter-point increments - since June 2004. Analysts expect another increase June 30.
After that, opinions are mixed. Some believe the Fed will keep pushing rates higher through much of this year. Others think the Fed might pause temporarily in the later summer or early fall.
"The bottom line is that Greenspan is in no way signaling that the Fed's tightening ballgame against inflation is nearly over," said Stuart Hoffman, chief economist at PNC Financial Services Group.
A mixed employment report, released by the government last week, helped to fuel speculation that the Fed's credit-tightening campaign might slow or possibly stop.
Greenspan, however, clicked off statistics including the unemployment rate's dip to 5.1 percent in May, the lowest since September 2001, to buttress his point that the economy is in good shape.
"The U.S. economy seems to be on a reasonably firm footing, and underlying inflation remains contained," he said.
Republicans and Democrats, meanwhile, differ on how the economy is faring.
"I need more evidence to be convinced that we have a robust economic recovery," especially in terms of job creation, said Rep. Carolyn Maloney, D-N.Y.
But Rep Jim Saxton, R-N.J., the committee's chairman, said "overall economic conditions remain positive."
Addressing the red-hot housing market, Greenspan said that while rapidly rising home prices probably won't lead to a national price bubble, there appear to be signs of "froth" in some local markets.
Still, if house prices were to decline in some local markets, Greenspan doubted that would have "substantial" implications for the economy.
But the dramatic increase in interest-only mortgages and the introduction of relatively exotic forms of adjustable-rate mortgages are of concern, Greenspan said: "The apparent froth in housing markets may have spilled over into mortgage markets."
One major factor contributing to the hot housing market is the low interest rate on the 10-year Treasury note, which influences longer-term mortgage rates.
Long-term rates have been falling even as the Fed has been pushing up short-term rates, a divergence Greenspan said is "clearly without recent precedent." The 10-year Treasury note is now around 4 percent, down from 4.8 percent when the Fed started raising short-term rates a year ago.
Greenspan said the unusual divergence of long-term and short-term rates is happening not only in the United States but in other countries, a puzzling phenomenon.
Among the theories Greenspan himself has floated and then discounted is that the low long-term rates are a sign of global economic weakness. But such rates were falling in 2004 when the global economy was growing at a sizable clip, he pointed out.
"The weakness argument has a certain credible ring to it, but when you begin to look at the details of the argument, it becomes less persuasive," Greenspan said.