Greenspan Sees Signs Of Asian Ripple Effect; Concern a Factor in Fed Inaction on Rates
Federal Reserve Chairman Alan Greenspan said yesterday that economic conditions in several hard-hit Asian nations have deteriorated in recent weeks and the fallout is "only now just being felt" by the U.S. economy.</br></br>Greenspan, testifying along with Treasury Secretary Robert E. Rubin and Agriculture Secretary Dan Glickman before the House Agriculture Committee, said that part of the progress several nations made early this year in stabilizing their economies has been reversed. Until the situation "fully stabilizes, we can't really have confidence" that the Asian problems won't spread further through the world financial system, he said.</br></br>Concern about the potential for such a "contagion" effect, and the increasing drag from the Asian situation on U.S. economic growth, are among the reasons the Fed hasn't raised interest rates this year to head off any possible acceleration of inflation. Fed policymakers last met Tuesday and left rates unchanged.</br></br>At a March 31 Fed policymaking session, minutes of which were released yesterday, the uncertainty of "the ultimate extent of retarding effects for the financial turmoil in Asia" was among the reasons given by officials for not raising rates at that time.</br></br>According to the minutes, the Fed policymakers expressed worry that rapid U.S. economic growth and tight labor markets would eventually lead to higher inflation if they persist. But most of the officials "saw little urgency to tighten policy at this meeting," the minutes said. ". . . The economy might well continue to accommodate relative robust economic growth and a high level of resource use {meaning very low unemployment} for an extended period without a rise in inflation."