- WASHINGTON (Reuters) - Federal
Reserve Chairman Alan Greenspan offered a clear signal on Wednesday that
no U.S. interest rate rises were imminent, saying the strength of the recovery
was unclear and that oil prices bore close watching.
-
- The U.S. central bank chief told the congressional Joint
Economic Committee in a relatively brief 90-minute appearance on Capitol
Hill that energy prices had not yet risen to a point that would seriously
sap spending but warned a lasting surge in the cost of oil could have "far-reaching"
consequences.
-
- In words that bolstered a growing view that the Fed is
in no hurry to raise interest rates from current 40-year lows, Greenspan
said that given low inflation, policymakers will have "ample opportunity
to adjust policy to keep inflation pressures contained once sustained,
solid economic expansion is in view."
-
- The Fed slashed the key fed funds rate, which affects
borrowing costs throughout the economy, 11 times last year to a 40-year
low of 1.75 percent to foster a recovery from a business-spending-led slump
and the effects of the Sept. 11 attacks on the U.S.
-
- NEED TIME TO MONITOR
-
- Greenspan said that such an accommodative monetary policy
was not consistent in the long term with steady prices but emphasized that
the Fed needed time to monitor consumer spending behavior that will have
a significant impact on the strength of the recovery.
-
- In response to questions, he said a solid expansion was
"not sufficiently in view to be comfortable" at this point that
it can be sustained.
-
- Analysts said Greenspan's tone indicated the Fed felt
no urgency to reverse the aggressive rate-cutting campaign it conducted
throughout 2001.
-
- "The Fed will probably be raising rates, but they
can wait until they are convinced that things are doing better," said
economist Gary Thayer of A.G. Edwards and Sons Inc. in St. Louis. "If
it looks like higher oil prices will stay and weigh on consumer confidence,
the Fed may hold off raising rates for a while," he added.
-
- While listing a number of caveats about the broad economy,
Greenspan highlighted robust gains in productivity -- or output per hour
-- that he said meant wages can rise without pressuring prices. He added
that he did not fear a bubble in the housing market and said low mortgage
rates were supporting a strong housing market.
-
- BUSINESSES REMAIN WARY
-
- But he noted business executives so far were less optimistic
than analysts about the future, adding that they would need higher profits
and cash flows to induce them to boost capital spending.
-
- The attitude of business is important since it is corporate
spending, economists and Fed officials have stressed, that will help make
the rebound a lasting one.
-
- The Fed chief praised the economy's resilience in the
face of last year's downturn. "But the strength of the economic expansion
that is under way remains to be clarified," he added.
-
- Economist Lynn Reaser of Banc of America Capital Management
Inc. in St. Louis, Mo., said Greenspan was clearly underlining the economic
risks ahead, especially the potential damage a spike in energy charges
could inflict.
-
- "The chairman is emphasizing the uncertainty. ...
They (Fed officials) will not push to raise rates," Reaser said.
-
- Greenspan said that a limited rise in energy prices would
have only a small effect on the U.S. economy, but a large and sustained
increase would have "far-reaching consequences."
-
- U.S. crude oil and gasoline prices have shot up in recent
weeks on shrinking world inventories and supply uncertainties.
-
- Iraq halted its crude oil exports for 30 days to protest
continuing violence in the Middle East and Venezuelan shipments were briefly
disrupted by a strike amid political turmoil.
-
- As a result, U.S. retail gasoline prices have soared
about 24 percent since early March, with the peak summer driving season
just ahead, when the main consumer impact will hit.
-
- While there were encouraging signs of a rise in U.S.
final demand -- seen as crucial to a sustained recovery, Greenspan again
warned that the outlook for this was murky.
-
- He said the current pickup in economic activity stems
mostly from a rebuilding of inventories cut sharply last year by firms
trying to get rid of a heavy overhang of stock.
-
- "The pickup in the growth of activity, however,
will be short-lived unless sustained increases in final demand kick in
before the positive effects of inventory investment dissipate," the
Fed chief said.
-
- "We have seen encouraging signs in recent months
that underlying trends in final demand are strengthening, but the dimensions
of the pickup are still not clear," he added.
|
