Greenspan: Economy on solid ground

June 9, 2005

Comments suggest interest rates may continue to rise

Inman News

he U.S. economy is on solid ground, Federal Reserve Board Chair Alan Greenspan told Congress this morning.

"The U.S. economy seems to be on a reasonably firm footing and underlying inflation remains contained," Greenspan said in testimony prepared for the Joint Economic Committee in Washington, D.C.

"Most recent data support the view that the soft readings on the economy observed in the early spring were not presaging a more serious slowdown in the pace of activity," Greenspan said.

Greenspan, repeating language from the Fed's last meeting in May, said that "policy accommodation can be removed at a pace that is likely to be measured.'' The comment suggests that the Fed's Open Market Committee will continue to raise interest rates.

The Open Market Committee has raised the its overnight bank lending rate from a four-decade low of 1 percent in eight consecutive quarter-point increases.

In a widely expected move, the U.S. Federal Reserve on March 22 decided to raise its target for the federal funds rate to 2.75 percent, saying that pressures on inflation have picked up in recent months.

Greenspan and other policymakers raised the federal funds rate by 25 basis points, to 2.75 percent. Analysts had almost unanimously predicted the decision.

In a statement announcing the action, the Fed said policymakers continue to believe they can raise rates in a "measured" fashion, as they have said for nearly a year. But Fed expressed concern about inflation, saying that "pressures on inflation have picked up in recent months and pricing power is more evident."

The Open Market Committee is scheduled to meet again at the end of this month and is expected to raise the rate another quarter point.

Copyright 2005 Inman News

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