US rate rise likely after Greenspan testimony

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The Independent Online
Washington - Alan Greenspan, Federal Reserve chairman, indicated more strongly than ever yesterday that he favoured a pre-emptive strike against inflation, strengthening market belief that the central bank will nudge interest rates higher when its key policy-making committee meets on Tuesday, writes Rupert Cornwell.

"It's almost a done deal. He said he's ready to pull the trigger," commented David Jones, a Wall Street economist, reflecting the widespread view that after leaving short-term rates untouched for more than a year, the Fed will increase them next week, probably by 0.25 percentage points.

In testimony to the congressional Joint Economic Committee, Mr Greenspan depicted a robust economy fuelled by strong consumer demand, with good prospects of sustained growth for the rest of the year. Should the Fed choose to act, he added in the phrase that sent the Dow tumbling as much as 70 points in early trading, "we know from past experience that although the financial markets may respond immediately, the main effects on inflationary pressure may not be felt until late this year and in 1998".

For Wall Street his words were as near as the cryptic Mr Greenspan could come to confirming a move next week.