Greenspan: Favorable Outlook for Economy
Federal Reserve Chairman Alan Greenspan gave a mostly positive speech to the House Banking Committee saying that economic growth outlook is good, and the Fed should continue to raise interest rates.
Greenspan said that the Fed will continue to raise rates at the same gradual pace that it has been. He pointed out that there was an economic slowdown in the spring, but that it is generally back on track now.
Greenspan told the committee, “Our baseline outlook for the U.S. economy is one of sustained economic growth and contained inflation pressures.”
“In our view, realizing this outcome will require the Federal Reserve to continue to remove monetary accommodation,” said Greenspan. “This generally favorable outlook, however, is attended by some significant uncertainties that warrant careful scrutiny.” The Washington Post reports:
The Fed has raised its federal funds rate — the interest rate charged on overnight loans between banks — nine times in the past year, to 3.25 percent. Greenspan’s comments prompted many analysts to predict that Fed officials will keep lifting it steadily higher in coming months, to at least 4 percent by year-end.
Greenspan’s comments “dashed any hopes that the Fed would hint at a near-term change in its course” of raising rates, said Gary Bigg, an economist at Bank of America Corp.
According to the Fed, the economy should grow by 3.5%. This has been revised from the estimate made in February, which called for growth of 3.75% to 4%.
Greenspan says that there are three main factors that could threaten the new economic outlook. These include wage pressures, rising energy costs, and if long-term interest rates rise too much, sectors like housing could become a problem.