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Originally Posted by gldstwmn
He did? When? In his speech yesterday he said (I'm paraphrasing) it was still too soon as we had seen the end of deflation but we still hadn't seen strong enough signs of inflation. The FOMC meets may 4. The beige book comes out today. That should foretell a lot about what's going to happen on May 4.  |
http://money.cnn.com/2004/04/21/news...ex.htm?cnn=yes
Greenspan: Rates must rise
Fed chairman says inflation in check for now, but economy stronger, and Fed will act eventually.
April 21, 2004: 10:19 AM EDT
NEW YORK (CNN/Money) - The U.S. economy is growing with more vigor, and interest rates must eventually rise to keep inflation in check, Federal Reserve Chairman Alan Greenspan said Wednesday, another hint that a Fed rate hike is nearing.
While the threat of "disinflation," or a lack of corporate pricing power, seems to have faded, inflation is still dormant so far, since labor costs are flat, the central bank chairman said in prepared remarks delivered to the Joint Economic Committee of Congress.
"But the Federal Reserve recognizes that sustained prosperity requires the maintenance of price stability and will act, as necessary, to ensure that outcome," he added.
Fed policy makers are scheduled to meet May 4 to discuss the economy and their target for the federal funds rate, an overnight bank lending rate that influences other rates throughout the economy. Few analysts expect a rate increase at that meeting, but market participants expect a rate hike to come at the Fed's August policy meeting.
In listing signs of an economic acceleration this year, Greenspan cited a faster rate of growth in gross domestic product (GDP), strong consumer and business spending, a recovery in factory output, a bounce in exports, and a labor market that's "gradually improving."
"Looking forward, the prospects for sustaining solid economic growth in the period ahead are good," he said.
But he also warned that businesses still seemed cautious about spending on factory improvements, inventory building and hiring. He also noted that the recent boom in productivity, or output per worker hour, wasn't quite over yet, as companies continue to use technology to run more efficiently.
If demand is still strong when that process finally runs its course, Greenspan said, then hiring will need to accelerate, putting upward pressure on wages and, eventually, consumer prices.
"Should such an acceleration of costs persist ... higher price inflation would inevitably follow," Greenspan said.
Nevertheless, he indicated that such inflation wasn't exactly right around the corner.
"Still-significant productivity growth and a sizable margin of underutilized resources, to date, have checked any sustained acceleration of the general price level and should continue to do so for a time," he said.
