(October 29) – Somehow he
avoided spooking markets.
At a a bi-annual meeting of
CEOs, known as The Business
Council, in Boca Raton last night,
U.S. Federal Reserve chairman
Alan Greenspan lauded the American
economy, noting the “virtuous
cycle” that has fuelled the record
expansion.
“A whole new set of profitable
investments raises productivity,
which for a time raises profits –
spurring further investment and
consumption. At the same time,
faster productivity growth keeps
a lid on unit costs and prices,”
Greenspan said. “Firms hesitate
to raise prices for fear that
their competitors will be able,
with lower costs from new
investments, to wrest market
share from them. Such circumstances
lead to a very favorable period
of strong growth of real output
and low inflation.”
But Greenspan went on to say,
“Clearly, the growth in gross
domestic product cannot exceed
the sum of growth in structural
productivity and in the working-age
population indefinitely. Market
pressures must eventually emerge
that work to contain such
unsustainable growth.”
As for the Fed’s next move,
Greenspan was careful not to show
his hand, noting that the Fed will
be watching the data like the rest
of us. “The Federal Reserve must
monitor [the impact of rising
rates on demand], but also the
evolving capacity of our economy
to meet higher levels of demand.
Maintaining balance between these
forces will be essential to
preserving the stable price
environment that has provided a
firm foundation for this period
of extraordinary innovation and
progress in the U.S. economy.”
-IE Staff
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