GREENSPAN GLUM; FED CHAIRMAN FRETS OVER FUTURE AMID WILD BOOM.Byline: Martin Crutsinger Associated Press Associated Press: see news agency. Associated Press (AP) Cooperative news agency, the oldest and largest in the U.S. and long the largest in the world. Federal Reserve Chairman Alan Greenspan Alan Greenspan Dr. Greenspan is Chairman of the Board of Governors of the Federal Reserve System. Dr. Greenspan also serves as Chairman of the Federal Open Market Committee (FOMC), the Fed's principal monetary policymaking body. called the economy's strong growth and low inflation ``truly phenomenal'' Thursday, but he also expressed worries about ``imbalances in our expansion'' - and that sent jitters jitters 'Butterflies' Psychology An episode of nervousness or anxiety that often precedes a public event; jitters is a type of performance anxiety which may affect actors in a stage production–stage fright or soloist musicians; it may respond to anxiolytics through Wall Street. Investors and analysts saw Greenspan's comments as a warning signal that even though America is enjoying the best combination of rapid growth, low unemployment and low inflation in three decades, the central bank is worried. ``Of most concern is how long this remarkable period of prosperity can be extended,'' Greenspan told an audience at an international conference on banking in Chicago. ``There are imbalances in our expansion that, unless redressed, will bring this long run of strong growth and low inflation to a close.'' As he has in the past, Greenspan expressed concern that the high-flying stock market could suddenly come back to earth, causing a reversal of the wealth effect that has powered consumer spending Consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. . Greenspan also said there was a ``limit to how long and how far'' America's soaring trade deficits can grow without bringing international pressures to bear on the U.S. economy. But Greenspan reserved his greatest worries for tight labor markets labor market A place where labor is exchanged for wages; an LM is defined by geography, education and technical expertise, occupation, licensure or certification requirements, and job experience , which have driven unemployment down to a 29-year-low of 4.2 percent, far below the level of 6 percent unemployment that economists used to believe was the threshold point at which tight labor markets would begin to trigger inflationary pressures. That hasn't occurred in this expansion, and Greenspan said Thursday that he believed the reason was a burst of productivity in recent years stemming from heavy investment by businesses in computers and other high-tech gadgets of the information age. Greenspan noted that over the past 12 months, productivity - output per hour of work - has been rising at nearly a 3 percent annual rate, three times the anemic anemic pertaining to anemia. 1 percent rate of the early 1990s. Higher output with the same number of workers allows businesses to pay those workers more and enjoy higher profits without raising the price of goods, something that would make inflation worse. But Greenspan also warned that the gains in productivity cannot keep inflation at bay forever because sooner or later the dwindling dwin·dle v. dwin·dled, dwin·dling, dwin·dles v.intr. To become gradually less until little remains. v.tr. To cause to dwindle. See Synonyms at decrease. pool of workers will start demanding wage hikes that can't be covered by rising productivity. ``Productivity is the good news, but Greenspan is warning that the good news won't last forever,'' said David Jones David Jones is a common name, particularly in Wales, and there have been several well-known individuals with this name. Variations include Dave Jones and Davy Jones. , chief economist The Chief Economist is a single position job class having primary responsibility for the development, coordination, and production of economic and financial analysis. It is distinguished from the other economist positions by the broader scope of responsibility encompassing the at Aubrey G. Lanston & Co. in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of . Jones said he read Greenspan's remarks as a caution that later this year the Fed will start to tighten interest rates because of inflation concerns. ``Greenspan dumped a pail of cold water on those analysts who believe the U.S. economy has entered a new era'' where the old rules don't apply, said Tim O'Neil, chief economist for Harris Bank in Chicago. On Wall Street, demand for bonds fell sharply with investors demanding much higher rates of return as protection against inflation. The yield on Treasury's benchmark 30-year-bond shot up to 5.79 percent, the highest level in 11 months, compared with 5.70 percent Wednesday. Stocks initially dropped as well after Greenspan's speech, falling by more than 100 points. But by the end of trading the Dow Jones industrial average Dow Jones Industrial Average The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. had recovered to close with a loss of only 9 points at 10,947. QUOTATIONS FROM THE CHAIRMAN ``The performance of the American economy over the past seven years has been truly phenomenal.'' ``Of most concern is how long this remarkable period of prosperity can be extended.'' ``There are imbalances in our expansion that, unless redressed, will bring this long run of strong growth and low inflation to a close.'' ``The remarkable American economy . . . and the Asian crises that caught us by surprise, among other humbling experiences, have made policy-makers particularly sensitive to how fast the world can shift beneath our feet.'' CAPTION(S): Photo, Box PHOTO (Color) no caption (Alan Greenspan) BOX: QUOTATIONS FROM THE CHAIRMAN (See text) |
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