Newspaper article THE JOURNAL RECORD

Upbeat Economic Outlook Brings Joy to Stock Market

Newspaper article THE JOURNAL RECORD

Upbeat Economic Outlook Brings Joy to Stock Market

Article excerpt

WASHINGTON (AP) -- Federal Reserve Chairman Alan Greenspan declared 1996 "a good year for the American economy" in a midyear report Thursday that triggered a rally from a relieved Wall Street.

Greenspan told the Senate Banking Committee that he sees no current sign that inflation is a problem despite this spring's surprisingly robust economic growth. And Fed policy makers, he said, are forecasting that growth will slow to a more sustainable pace in the second half of this year.

Wobbly stock and bond markets reacted with exuberance to a presentation they interpreted as a strong signal the Fed may not raise interest rates at its Aug. 20 meeting after all.

Low rates have been a major underpinning to Wall Street's bull market, which swung wildly this week on fears the 5 1/2-year advance may have ended.

The Dow Jones industrial average, which tumbled 161 points Monday, closed Thursday up 87.30 at 5,464.18. The price of the benchmark 30- year Treasury bond surged, depressing its yield to 6.9 percent -- the first time this indicator of interest rate trends has fallen below 7 percent in two weeks.

"This is a relief rally," said David Jones, economist at Aubrey G. Lanston & Co. "The markets had expected Greenspan would be more hawkish and more urgent about the need to increase interest rates."

Greenspan cited factors supporting the Fed's view that the economy is slowing, among them a rise in long-term bond prices this year and the increase in the U.S. dollar's value. That, he said, will help keep inflation contained but also is likely to boost U.S. demand for foreign goods, which become cheaper.

The Commerce Department reported Thursday that America's trade deficit jumped to $10.9 billion in May, the largest imbalance in eight years, as imports surged to an all-time high. The inflow was led by increased shipments of autos from Canada, Mexico and Germany and toys and electronic games from China.

America's deficit with China shot up 31 percent to $3.06 billion, almost surpassing the trade gap with Japan for the first time ever. The gap with Japan narrowed by 23.7 percent in May to $3.13 billion, its lowest level since 1992. …

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