Health
Greenspan Optimistic, But Cautious
The economy is showing signs of slowing down, but inflation woes might flare up again, according to Federal Reserve Chairman Alan Greenspan. Greenspan delivered his semiannual testimony last Thursday before the Senate as investors waited anxiously for clues whether the Fed would raise rates for the seventh time this year.
In his testimony, Greenspan praised the technological innovations that have spurred productivity gains, boosting the economy to a projected 3.25 - 3.75 percent annual growth. He warned, however, that the effects of technological growth spilled over into rapid growth of wealth and consumption. The wide disparity between consumer demand and supply potential could pressure the Federal Reserve to hike up interest rates again.
Similarly, Greenspan also voiced concerns about the tight labor market and rising energy prices that could ignite inflation woes. The available labor pool has hit incredible lows as technology has charged the new economy and lifted the bar on growth potential. While costs have been held "in check by productivity gains," inflation has increased substantially, he remarked.
On the brighter side, he noted that consumer spending has slowed down in the past few months, likely due to rising household debt, surging oil prices, and increasing stock of consumer durables (i.e., cars). Consumers have less extra income to spend as their portfolios no longer yield 20 percent or above through flattening stock prices.
"It is clear that, for the time being at least, the increase in spending on consumer goods and houses has come down several notches, albeit from very high levels," Greenspan said. He added, "continued fiscal discipline will contribute to maintaining robust expansion of the American economy in the future."
-----
Know how to invest in a slowing economy.
In his testimony, Greenspan praised the technological innovations that have spurred productivity gains, boosting the economy to a projected 3.25 - 3.75 percent annual growth. He warned, however, that the effects of technological growth spilled over into rapid growth of wealth and consumption. The wide disparity between consumer demand and supply potential could pressure the Federal Reserve to hike up interest rates again.
Similarly, Greenspan also voiced concerns about the tight labor market and rising energy prices that could ignite inflation woes. The available labor pool has hit incredible lows as technology has charged the new economy and lifted the bar on growth potential. While costs have been held "in check by productivity gains," inflation has increased substantially, he remarked.
On the brighter side, he noted that consumer spending has slowed down in the past few months, likely due to rising household debt, surging oil prices, and increasing stock of consumer durables (i.e., cars). Consumers have less extra income to spend as their portfolios no longer yield 20 percent or above through flattening stock prices.
"It is clear that, for the time being at least, the increase in spending on consumer goods and houses has come down several notches, albeit from very high levels," Greenspan said. He added, "continued fiscal discipline will contribute to maintaining robust expansion of the American economy in the future."
-----
Know how to invest in a slowing economy.
