Magazine article American Banker

Greenspan Gives U.S. Economy Another Passing Grade

Magazine article American Banker

Greenspan Gives U.S. Economy Another Passing Grade

Article excerpt

WASHINGTON -

Federal Reserve Board Chairman Alan Greenspan gave the economy a strong report card Tuesday, though he said policymakers are worried about overvalued equity markets, mounting debt, global financial stability, and tight labor markets.

"The economy appears stretched in a number of dimensions, implying considerable upside and downside risks to the economic outlook," Mr. Greenspan said in the first of two days of monetary policy testimony on Capitol Hill.

But "the economy evidently retains a great deal of underlying momentum despite the global economic problems and the still-visible remnants of the earlier financial turmoil in the United States," Mr. Greenspan told the Senate Banking Committee. "At the same time, no evidence of any upturn in inflation has, as yet, surfaced."

The remarks left economists convinced that the Fed, though ready to act, does not plan to change short-term interest rates any time soon.

"He basically said the Fed has to remain vigilant but did not give any indication of an imminent shift in monetary policy," said Nicholas Perna, chief economist at Fleet Financial Group.

"They are going to have to see some actual increases in the leading indicators of inflation before they raise rates," said Wayne M. Ayers, chief economist at BankBoston and chairman of the American Bankers Association's Economic Advisory Council. "They have effectively abandoned their preemptive strategy and are waiting to see the whites of their eyes before they act against inflation. …

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