Fed Chief Signals Rates Still to Rise; Greenspan Says Economy Has Left Soft Spot Behind, But Notes Housing Risk
Federal Reserve Chairman Alan Greenspan said the economy has left its soft spot behind and that companies' pricing power is more evident, suggesting more interest-rate increases are to come.</br></br>Mr. Greenspan also focused on new risks to the economic outlook, specifically high housing prices. In a report released yesterday, the Fed said the value of all U.S. housing climbed 15% in the first quarter from a year earlier, and mortgage debt rose 13%, both easily outstripping the 6% gain in after-tax income over the same period.</br></br>"The soft readings on the economy observed in the early spring" did not presage "a more-serious slowdown," Mr. Greenspan told Congress's Joint Economic Committee. Though there have been periods of weakness during the expansion, they are "backing and filling. . . . Instead of the economy going very smoothly forward it goes in little cycles. And hence, it's often misread as though we're about to tilt into a recession."</br></br>He said inflation was "contained," but cited risks: slowing productivity growth, which makes it more costly for firms to boost sales, and "evidence of increased pricing power."</br></br>The Fed has raised its target for the federal-funds rate, charged on overnight loans between banks, to 3% in eight quarter-point steps from 1% last June. Mr. Greenspan didn't address future rate moves, but quoted from the Fed's May 3 statement that interest rates would likely continue to rise at a "measured" pace. That has come to mean a quarter point per meeting. His commentary suggested that the Fed, contrary to recent speculation, probably will raise rates at least a few more times.