Greenspan Takes Hard Line on Growth --- Fed Will Continue Raising Rates Unless Spending And Market Cool Down
WASHINGTON -- Federal Reserve Chairman Alan Greenspan is taking a harder line on the perils of rapid growth, signaling that the Fed will keep raising interest rates unless consumer spending and the stock market quickly cool down.</br></br>In his semiannual economic presentation to Congress, Mr. Greenspan dropped his assertion -- made a month ago -- that the Fed's attempts to rein in the economy with earlier interest-rate increases were "well advanced."</br></br>Instead, he said yesterday that investor optimism and a bullish stock market have "to date . . . more than offset" the effects of higher rates and that spending even in sectors of the economy normally considered sensitive to higher rates "has remained robust." There is, he said, "little evidence that the American economy . . . is slowing appreciably."</br></br>In a booklet presented to the House Banking Committee accompanying Mr. Greenspan's testimony, Fed staffers wrote that the continued surge in demand "implies that the level of interest rates needed to align demand with potential supply may have increased substantially."</br></br>Markets have long been expecting the Fed to boost its target for the federal funds rate -- the rate at which banks lend to each other overnight -- by at least a quarter of a percentage point when policymakers next meet on March 21. Many investors have been expecting at least another half-point increase by the summer.