Greenspan flies inflation warning flag
Wednesday 22 January 1997
In a testimony on Capitol Hill, Mr Greenspan also defended comments he made in December about "irrational exuberance" in the US equity markets. The remark, which sent tremors through Wall Street at the time, "was not a shot from the hip", he insisted. The performance of the markets, he said yesterday, remained "breathtaking".
Translating Mr Greenspan's words as favourable news, investors yesterday gave a new lift to the Dow Jones Industrial Average which has continued to soar into record territory since the new year. After sagging more than 40 points at the start of trading, it closed up 40.03 at 6,883.90 after Mr Greenspan's comments.
Noting the continued stable growth of the US economy, Mr Greenspan told the US Senate that the economy "has retained considerable vigour, with few signs of imbalances and inflationary tensions that have disrupted past expansions". He reported that the economy grew about 3 per cent last year.
The chairman attributed the absence of inflationary pressure and low wage growth on several factors, in particular a continuing sense of job insecurity in the US workplace that was keeping wage pressures down. Among others were high US imports, increased deregulation, the declining influence of the unions and a sharp slowdown in the rise of healthcare costs.
There was a clear warning in his testimony, however, that wages could begin to succumb to upward pressures at any time, which could feed into higher inflation. "The recent pick-up in some measures of wages suggests that the transition may be already running its course," Mr Greenspan warned. The jobless rate in the US is at a seven-year low of only 5.3 per cent.
Mr Greenspan also reminded listeners that in setting monetary policy, the Fed always had to look roughly six months into the future. This was in part because there was always a time lag of about the same period before any interest rate adjustment began to bite.
That was taken by many analysts as a clear signal of the Fed's readiness to tighten monetary conditions at the first real sign of an uptick in wages and inflation. "Greenspan is clearly preparing the market for a possible tightening move. He leaves no question about that," said David Jones, an analyst with Aubrey Lanston.
The next meeting of the Fed's Open Market Committee, which sets interest rates, is scheduled for 3-4 February, by which time more data will be available to indicate whether new inflationary dangers are indeed gathering.
Addressing the extraordinary ebullience of Wall Street, Mr Greenspan remarked that the "stock market continued to climb at a breathtaking rate". He was forced on to the defensive about his "irrational exuberance" quip of last December by some aggressive questioning from senators.
"It was not a shot from the hip," Mr Greenspan said, explaining that he had been trying to lay out all the various factors that had to be taken into account by the Fed in determining monetary policy.
"We thought long and in detail that any such statement could very well have immediate market effects."
- 1 Scottish referendum: So how about the English now being given a chance to split from England?
- 4 Matthew Miller: American sentenced to hard labour in North Korea 'wanted to be Snowden II'
- 5 Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
Stamford Hill council removes 'unacceptable' posters telling women which side of the road to walk down
Kim Kardashian 'naked pictures' leaked on 4chan weeks after Jennifer Lawrence 'The Fappening' scandal
Isis in Syria: 60,000 Kurds flee terror in new exodus
Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
4Chan naked photos leak: Celebrity Twitter reactions to the mass breach of privacy
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Archbishop of Canterbury admits doubts about existence of God
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...