- The Chairman of the United States Federal
Reserve, Alan Greenspan, has warned that the outlook for the US economy
in 1999 has 'weakened measurably' and that the Asian contagion is not in
remission.
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- Some observers have interpreted his comments
as a hint that US interest rates will come down again soon to help stimulate
the economy.
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- The Fed chief said lenders were pulling
back dramatically from even relatively low-risk loans, and a shift by investors
away from risk was exacerbating the problems in global markets.
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- Mr Greenspan, speaking to the National
Association of Business Economists, said: "It's pretty obvious I think
that the outlook for 1999 for the US economy has weakened measurably in
the aftermath of the Russian devaluation and debt moratorium.
-
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- "The building sense of stability
in international markets has been undermined, as the belief that the Asian
contagion had moved into remission has been proved quite wrong.
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- "The result of this, as I am sure
all of you are acutely aware by now, has been a very dramatic change of
the risk profile of the world,"
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- He said a reluctance by international
investors to take risks was exacerbating problems in foreign markets and
this was spilling over into US financial markets.
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- The Fed chief continued: "We are
clearly facing a set of forces that should dampen demand going forward
to an unknown extent.
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- "We do not know how far it will
go and how it will affect consumer and business spending.
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- "This is a time for monetary policy
to be especially alert."
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- Mr Greenspan estimated that the stock
market decline since the summer, partly offset by increased bond prices,
had destroyed $1.5 trillion in consumer and business wealth.
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- He said this was bound to slow spending
in the future.
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- He said: "It's got to show up somewhere.
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- "We're bound to see a major impact
in personal consumption expenditures and housing."
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- Low inflation
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- On a more positive note Mr Greenspan
said that currently the American economy is in reasonable shape with "low,
if not declining, inflation."
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- He added: "We are still seeing fairly
significant continued momentum.
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- "We've got an economy that as of
now is really quite an impressive sight."
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- Mr Greenspan went on: "We are far
short of anything that would resemble a credit crunch in the United States."
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- This is where loans dry up because of
over-cautious lenders.
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- However the Fed chief said the global
financial crisis had had a strong impact on the manufacturing sector and
he saw early anecdotal evidence of a slowdown in the economy.
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- Last week, the Federal Reserve cut its
benchmark short-term interest rate by a quarter per cent in a bid to offset
the impact of global economic turmoil.
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