January 30, 1998 in Nation/World

Fed Chief Gives Rosy Evaluation Greenspan Declares U.S. Economy Is In ‘Exceptionally Healthy’ Shape

Martin Crutsinger Associated Press
 

Federal Reserve Chairman Alan Greenspan delivered a strongly upbeat assessment of an “exceptionally healthy” U.S. economy Thursday. He previewed a best-case scenario in which the Asian financial crisis slows but does not threaten America’s long economic expansion.

Greenspan’s sunny economic views cheered Wall Street, with investors seeing the remarks as an indication the central bank will not feel the need to raise interest rates anytime soon.

“Mr. Greenspan was a good friend of the financial markets today. What he said was music to our ears,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis.

Stocks and bonds both posted sizable gains. The Dow Jones industrial average ended the day up 57 points at 7,973.

Analysts said Greenspan’s comments made them even more certain that central bank policy-makers, who meet Tuesday and Wednesday, will not feel the need to push interest rates higher for some time to come.

Taking note of current conditions, Greenspan said, “It is clear that the U.S. economy has been exceptionally healthy, with robust gains in output, employment and income. At the same time, inflation has remained low - indeed, declining by most measures over the past year.”

Greenspan said while the strong growth and tight labor markets had been threatening to increase inflationary pressures down the road, he believed the Asian financial crisis would cause U.S. growth to moderate to a more sustainable pace.

“Before spring is over, the abrupt current account adjustments that financial difficulties are forcing upon several of our Asian trading partners will be showing through here in reductions in demand for our exports and intensified competition from imports,” Greenspan said.

The Economic Policy Institute, a labor-backed think tank, last week predicted that America’s merchandise trade deficit, already running close to $200 billion, could swell by another $100 billion at a cost of 1.1 million U.S. jobs.

Asked about that forecast, Greenspan said every week 300,000 jobs are lost in the U.S. economy but that figure is exceeded by the number of new jobs being created. He said job growth has been so strong, pushing unemployment down to a 24-year low, that some moderation in growth had to occur to keep inflation at bay.

Greenspan conceded that his currently benign forecast of the impact of the Asian crisis was based on a view that the financial fallout by plunging currencies, falling stock markets and rising bankruptcies is beginning to moderate.

But he cautioned that “a continuation of the Asian crisis should give us pause in assuming that our economy will remain robust indefinitely.” It is for that reason that U.S. support for the $100 billion bailout packages assembled by the International Monetary Fund is so critical to contain the economic fallout, he said.

On another topic, Greenspan said he was happy with the efforts being made to fix the Consumer Price Index so it does not overstate inflation. Progress has lessened the need for Congress to step in and legislate lower cost-of-living increases in such programs as Social Security, he said.


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