Published on Jul 21, 2015, English/Nat
- Chairman of the Federal Reserve Alan Greenspan Testifying Before Congress, 1997 -
U-S Federal Reserve Chairman Alan Greenspan said on Tuesday the economy surpassed expectations in 1996, but warned the good news on inflation may be ending as low unemployment leads to rising wage demands.
In his first testimony to Congress on the state of the economy in six months, Greenspan gave a generally upbeat assessment of recent developments. It was the first time in six months that Alan Greenspan - the U-S Federal Reserve Chairman - has made a statement to the Congress on the economy .He gave the Senate Budget Committee a generally upbeat assessment of the state of the U-S economy on Tuesday.
+SOUNDBITE: (English)
"I think it's certainly fair to say that the overall performance of the American economy has continued to surpass most forecasters' expectations. The current cyclical upswing is now approaching six years in duration, and the economy has retained considerable vigor, with few signs of imbalances and inflationary tensions that have disrupted past expansions."
SUPER CAPTION: Alan Greenspan, Federal Reserve Chairman
Greenspan faced questions from senators to explain his December comment about "irrational exuberance" that sent financial markets tumbling around the world...Traders initially feared the central bank would begin raising rates to prick a speculative bubble on Wall Street. Greenspan said the remark was an attempt to explain that the central bank had to look at a variety of things including financial market developments in setting interest rate policies. The Federal chief let it be known the Central Bank is watching out for inflationary pressures spawned by the low unemployment rate. The number of unemployed is at 5.3 percent - the lowest its been for seven years.
But he emphasized there is no sign of such pressures in the current recovery, unlike that of the 1980s, when tighter job markets did trigger higher wage and inflation pressures.
+SOUNDBITE: (English)
"In contrast to that earlier period, we have not experienced a broad increase in inflation. In fact, by some important measures of price trends, inflation actually slowed a bit in 1996."
SUPER CAPTION: Alan Greenspan, Federal Reserve Chairman
Greenspan noted that the Federal Reserve Bank, whose primary mission is to keep inflation at bay, must set a forward-looking policy.
SOUNDBITE: (Germany)
+"The question is, of course, where do we go from here? Can we achieve significant gains in real activity while avoiding inflationary excesses? Because monetary policy works with a lag, it is not the conditions prevailing today that are critical, but rather those likely to prevail 6 to 12 months, or even longer, from now."
SUPER CAPTION: Alan Greenspan, Federal Reserve Chairman
*He said that widespread job insecurities have kept wage pressures down even though labour markets are tight.
SOUNDBITE: (Germany)
+"Suppressed wage-cost growth as a consequence of job insecurity can be carried only so far. At some point in the future, the trade off of subdued wage growth for job security has to come to an end."
SUPER CAPTION: Alan Greenspan, Federal Reserve Chairman
Some economists viewed Greenspan's comments as a clear signal that the Federal Reserve's next move will be to tighten interest rates, a development that would send up borrowing costs for millions of consumers and businesses.
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