Inflation is under control around the globe and the job of central banks worldwide is to keep up the progress, Federal Reserve Chairman Alan Greenspan said Tuesday.
On another issue, he rejected more regulation to prevent another investment bank collapse like the one suffered by Baring Brothers & Co.
“An environment conducive to stable product prices and to maintaining sustainable economic growth is a central responsibility of central banks,” Greenspan said in a speech to a monetary policy conference in Stockholm, Sweden.
“Perhaps the most important development … has been the shift from an environment of inflationary expectations built into both business planning and financial contracts toward an environment of lower inflation. It is important that progress continue,” Greenspan said.
Shortly before the speech was delivered, the Labor Department reported that wholesale inflation turned in its best performance in five months. Energy and food costs declined in March, helping to keep the overall price level from rising at all.
Greenspan did not discuss the U.S. economy in his remarks. The Fed has raised interest rates seven times during a 12-month period ending Feb. 1 to slow the economy and keep inflation in check.
“Few now question the overall benefits for economic growth and stability of the dramatic slowdown in the rate of price inflation on a worldwide basis over the past decade,” Greenspan said. “Fewer should question the need to maintain a credible long-run commitment to price stability.”
As for the collapse of Baring Brothers, the British investment house that lost nearly $1 billion in the Asian futures markets, Greenspan said one lesson is that “large losses can be created quite efficiently. Today’s technology enables single individuals to initiate massive transactions with very rapid execution.”
But he said putting up barriers to technology is not the answer, because “Suppressed markets in one location would be displaced by others outside the reach of government controls and taxes.”