Outlook: Always Summer

YOU WOULD expect the US Treasury Secretary to be bullish about his own economy - most Americans are. But Lawrence Summers is also an economist by background and you might therefore expect him also to temper his optimism with a degree of caution and self doubt. He does not. Mr Summers, in London briefly on route to the G20 in Berlin, is the latest policy honcho to proclaim that the American economy is going from strength the strength. This week's figures seem to bear him out. Production has accelerated again, business confidence has risen again, yet there is still not a whisper of inflation in the statistics.

To be fair to Mr Summers, he also warned of the need to steer clear of any complacency. And down the road from the US Treasury, in the equally magnificent Federal Reserve headquarters, Alan Greenspan, optimistic as he is about the changes in the economy, will be alert as ever for hints of inflationary pressure.

Given that the entire community of analysts on Wall Street appears to have decided inflation has been abolished, this might be precisely the time to start worrying about where US and ultimately world inflation could be heading. Even the most ardent New Economy converts would be hard pushed to argue that the American economy can grow at a trend rate of 4-5 per cent without triggering inflation. The pace of expansion is well above any plausibly sustainable trend, and will have to slow. That is not happening spontaneously, so eventually the breaks will have to be applied through further rises in interest rates.

For the time being, most people think they won't have to be raised by much, but we could be in for a rude awakening. A third of American employers say they are finding it hard or impossible to fill jobs. Revised figures from the Bureau of Economic Analysis suggest that the total wage bill in the private sector has been growing at a sprightly 8 per cent, well above the pay growth reflected in the headline hourly earnings figures on which financial markets concentrate. In the pipeline are big increases in health costs and probably a $1 rise in the minimum wage from $5.15 an hour. The official figures also fail to take account of the growing amount of pay taken in the form of shares and share options.

The good news story about US economic prospects has taken too firm a hold for such warning signals to dent confidence - or share prices - for now. But once the Y2K fears are safely out of the way, Mr Greenspan will start preparing the markets for a rate rise at the next Fed meeting in early February. As the US economy enters the history books for the longest expansion ever, he will need to point it towards the runway with some vigour if he is to achieve the soft landing Mr Summers seems so confident of.