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 Five-year-old Iris Grace is raising awareness of autism through her extraordinary paintings
- 2 Car tax disc changes: Two days to go - and they affect you much more than just not displaying a piece of paper
- 3 The Simpsons death: Creator Al Jean would 'kill himself' before character like Homer or Lisa
- 4 British man raped while urinating in bushes at Oktoberfest beer festival in Germany
- 5 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
Five-year-old Iris Grace is raising awareness of autism through her extraordinary paintings
Car tax disc changes: Two days to go - and they affect you much more than just not displaying a piece of paper
Isis an hour away from Baghdad - with no sign of Iraq army being able to make a successful counter-attack
British man raped while urinating in bushes at Oktoberfest beer festival in Germany
George Clooney and Amal Alamuddin wedding: The famous congratulate actor and human rights lawyer after Venice nuptials
Isis, we are told, is a 'clear and dangerous threat to our way of life'. I’m sorry, but I just don’t buy it
Exclusive: 'Putin's Russia has been my biggest regret,' says Nato's outgoing Secretary General
'Women, walk wherever you want' posters taken down in Stamford Hill following 'unacceptable' signs separating men and women
There’s no excuse for Dave Lee Travis’s behaviour, but we need to keep a sense of proportion
Mark Reckless becomes second Tory MP to defect to Ukip in a month
Should gay sex be illegal? 16% of Britons think so
- < Previous
- Next >
iJobs Money & Business
NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...
£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...
Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...
£300 - £330 per day: Ashdown Group: SQL Developer (Stored Procedures) Watford...