Newspaper article The Christian Science Monitor

Economists and Fed See Peppy Economy

Newspaper article The Christian Science Monitor

Economists and Fed See Peppy Economy

Article excerpt

MANY professional economic forecasters rely on the short memory span or charity of their clients to stay in business. If they make a mistake in their predictions, the client won't remember it or will have some mercy considering the general fallibility of forecasters.

But Alan Greenspan is less fortunate. Every hint of a forecast by the chairman of the Federal Reserve is listened to avidly by financial market participants and the press. Investors act on his words; the news media record and report them.

Since the Fed reversed its monetary policy by boosting short-term interest rates by one-quarter of a percentage point on Feb. 4 and by the same amount on Tuesday, Mr. Greenspan's forecasting record has garnered renewed interest. The action is based on the assumption that the recovery is now vigorous enough and close enough to full capacity that it is time to prevent future inflation. The Fed has plenty of company.

Allen Sinai, chief economist of Lehman Brothers, New York, sees "a solid, strong expansion, increasingly more widespread across more industries, regions, and companies. The current business cycle upturn is shaping up as one of the best in decades."

In New York, Prudential Securities' Richard Rippe figures that the economy has taken a modified version of the mail carrier's pledge: "Neither snow, nor sleet, nor cold, nor earthquakes, nor prior-period strength is deflecting it from the swift completion of its rounds."

"The economy is entering 1994 like a lion," write Roger Brinner and David Wyss, economists with DRI/McGraw-Hill, a Lexington, Mass., consulting firm. "Indeed, the major worry now is that the Fed may have waited too long to tighten."

A survey this month by Blue Chip Economic Indicators of 50 forecasters found a consensus forecast for this year of 3.6 percent real growth in the output of goods and services.

Leif Olsen, an investment manager in New Canaan, Conn., predicts 4 percent real growth this year, or perhaps more. Using reports from the New York Times of Greenspan's testimony in Congress over the past five years, Mr. Olsen found that the Fed policymaker was often wrong. …

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