Greenspan rules out co-ordinated rate cut
Thursday 17 September 1998
"I think that I can safely say that at the moment there is no endeavour to co-ordinate interest rate cuts," he said. "We are in fairly extensive conversations among the G10 central bank governors and we are clearly exchanging views on all various different aspects of our economies and our views of the overall international situation."
Markets had been hoping for hints of co-ordinated moves to lower world interest rates. The hopes had been raised in recent days following a variety of statements from leading central bankers and finance ministers.
The Dow Jones index fell by 16.74 points to 8007.65 in early afternoon trading, retreating from an earlier 57 point gain. In London the FTSE 100 finished the day up 10 at 5,291.7. Investors were nervous ahead of Mr Greenspan's testimony, which was released after the London markets closed.
Sterling closed at DM2.835, over a pfennig up on the day.
Speaking in Tokyo early yesterday morning, Gordon Brown, the Chancellor, warned that he would not put UK economic stability at risk for the sake of intervention in the global financial crisis. His remarks were interpreted as meaning that UK rates would not come down unless domestic economic conditions were right.
Both the US Fed chairman and the UK Chancellor said the international community was ready to help economies in need, but only if these economies took appropriate steps towards reform. The Chancellor said the G7 nations would discuss options for intervention over the next few weeks.
In London, Mr Greenspan's impending testimony overshadowed the latest UK economic data, which revealed falls in both the rate of earnings growth and unemployment. Economists said the figures were "neutral to positive" for the interest rate outlook.
The minutes of the August meeting of the Bank of England's Monetary Policy Committee (MPC), showed the committee voted 7:2 in favour of keeping rates on hold, citing earlier increases in the rate of earnings growth and falls in unemployment as causes for concern. Willem Buiter voted for an immediate rise in rates, while DeAnne Julius called for a rate cut.
Headline earnings growth fell to 4.7 per cent in June, down from 5 per cent in May and better than market expectations. There were falls in the rate of earnings growth in manufacturing and services sectors.
Economists predicted that the rate could next month fall below the 4.5 per cent level considered by the MPC as being compatible with its inflation target. However, most forecasters, including the Bank itself, expect pay pressures to pick up again next year when the national minimum wage comes into force.
Unemployment fell by 16,400 in August on the claimant count measure, a sharper fall than the market had been expecting. The July figure was revised to show a slightly larger fall than first reported.
Some economists called the labour market data a "puzzle", saying they would expect a fall in the rate of earnings growth to be accompanied by a rise in unemployment. Several attributed the mixed picture given by the labour market data to statistical "blips", saying the data would soon start to show rising unemployment. Other analysts said the falling jobless total would give the MPC cause for concern.
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