Greenspan hints at rates rise as US booms

ALAN GREENSPAN, the chairman of the US Federal Reserve Board, signalled that a further increase in US interest rates is likely with the economy expanding at an "unsustainable" pace. Increases in productivity had made 1999 an exceptional year for the American economy, he said, but the Fed stood ready to pre-empt inflationary pressures.

The Fed chairman also repeated his view - first expressed in December 1996 - that improvements in productivity and profits have created a bubble in share prices.

"The danger is that ... an unwarranted, perhaps euphoric, extension of recent developments can drive equity prices to levels that are unsupportable," he said in the eagerly awaited twice-yearly Humphrey-Hawkins testimony to Congress.

Bond prices fell immediately and sharply, the yield on the benchmark 30 year Treasury bond climbing to 5.95 per cent. The futures markets reckoned there was now a 50-50 chance the Fed would raise interest rates next month.

The Dow Jones Industrial Average index was more than 76 points lower an hour after Mr Greenspan spoke, at 10,926.48. It has fallen sharply from 11,209.84 at the end of last week.

The technology-dominated Nasdaq index fared worse, losing 71.4, or 2.6 per cent, to reach 2,690.37 by late morning.

The dollar was also weaker against both the yen and euro, dropping to a one-month low below 117.5 against the Japanese currency.

"In the past, Greenspan has used the pre-emption word as a cast-iron signal that rates were about to go up. He has maybe left himself a little room for manoeuvre this time, but we will see them increase by October," said Ian Shepherdson, an analyst at High Frequency Economics.

In his prepared remarks, Mr Greenspan noted that 1.25 million new jobs had been created in the US in the first six months of this year. There was no sign yet of higher wage costs, and the Fed had tried to allow the economy to realise its full potential. But, he added: "It is imperative that we do not become complacent."

An acceleration in productivity gains had allowed the combination of slower inflation and rapid real growth. If the expansion lasts until January it will have lasted more than nine years to become the longest of the post-War era.

The Federal Reserve raised its key policy rate by a quarter point to 5 per cent last month, having cut it three times last autumn in response to the global financial crisis.

Start your day with The Independent, sign up for daily news emails
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Reimagined: Gwyneth Paltrow and Toni Collette in the film adaptation of Jane Austen's Emma
Arts and Entertainment
Jesuthasan Antonythasan as Dheepan
Cannes 2015Dheepan, film review
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Arts and Entertainment
The pair in their heyday in 1967
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine