USA: JOINT ECONOMIC COMMITTEE: GREENSPAN TESTIMONY

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• published: 21 Jul 2015
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English/Nat U-S Federal Reserve Chairman Alan Greenspan says that while inflation is in check the central bank should take preemptive action to prevent any threat to continued economic growth. Some analysts believe that by using the word "preempt" Greenspan is signalling that the Federal Reserve is prepared to act quickly to raise short-term interest rates to slow the economy. But despite the hints, Wall Street seemed to take Greenspan's comments in its stride, with stocks moving only modestly higher on Thursday. It was the second such hint from Greenspan this week. His testimony before the Joint Economic Committee in the U-S Congress came just a day after the government reported that inflation remained tame in May. SOUNDBITE: (English) "For monetary policy to foster maximum sustainable economic growth, it is useful to preempt forces of imbalance before they threaten economic stability. But this may not always be possible - - the future at times can be too opaque to penetrate. When we can be preemptive, we should be, because modest preemptive actions can obviate the need of more drastic actions at a later date that could destabilize the economy." SUPER CAPTION: Alan Greenspan, U.S. Federal Reserve Chairman Private economists expect Federal Reserve policy-makers to raise short-term interest rates, either at their next meeting on June 29th/30th or sometime later this year to keep the economy from overheating. Last month, Federal Reserve policy-makers said they were leaning towards raising short-term interest rates because of what they called "the potential for a buildup of inflationary imbalances." Greenspan said it was necessary to take actions based on predictions of what the economy might do in the near future to achieve stability. SOUNDBITE: (English) "Because monetary policy operates with a significant lag, we have to make judgments, not only about the current degree of balance in the economy, but about how the economy is likely to fare a year or more in the future under the current policy stance." SUPER CAPTION: Alan Greenspan, U.S. Federal Reserve Chairman The Federal Reserve has not raised U-S interest rates in more than four years. When interest rates go up, borrowing becomes more expensive, consumers and businesses tend to spend less and so the economy eventually tends to slow. Greenspan acknowledged that strong consumer demand has kept the U-S economy growing, even while some other countries have suffered two years of recession. SOUNDBITE: (English) "The American economy has maintained its momentum and emerging economies in Asia and Latin America are clearly on firmer footing, though in some cases, their turnarounds appear fragile." SUPER CAPTION: Alan Greenspan, U.S. Federal Reserve Chairman Many economists believe that if U-S consumers continue their buying spree as demand for American goods grows overseas, production capacity could be overloaded, leading to inflationary pressures. Analysts say Greenspan's comments appear to back up the idea that the Federal Reserve is likely to raise short-term rates later this month. SOUNDBITE: (English) "They are not leaning, they are going to hike rates. Yeah, he was very clear about that - I mean you cant just say you are going to hike rates, but he said two things that really give it away. Number one, he distances himself from yesterday's benign C-P-I (Consumer Price Index) by saying we are looking ahead at conditions as they develop, and then he went on to say that there are factors that could lead to higher inflation." SUPER CAPTION: David Horner, Senior Financial Strategist, Merrill Lynch But economists disagree over how many times the interest rate could be raised, or by how much. SOUNDBITE: (English) You can license this story through AP Archive: http://www.aparchive.com/metadata/youtube/4e5dede335d97559ddd62e30e418ba7c Find out more about AP Archive: http://www.aparchive.com/HowWeWork