Four interest rate increases by the US Federal Reserve in the last year have not cooled the supercharged US economy and more may be needed to ease growing inflationary pressures, Mr Alan Greenspan, the Fed chairman, warned yesterday.
In his half-yearly Humphrey Hawkins report on the economy to Congress, Mr Greenspan lavished praise on the unprecedented recent combination of rapid growth, accelerating productivity and quiescent inflation.
But he told the House of Representatives Banking Committee that growing imbalances in labour markets, financial markets and the external account jeopardised sustainable growth.
The Fed chairman also repeated his view that projected budget surpluses over the next 10 years should not be repaid in tax cuts but should be used to reduce public debt. Republican presidential hopefuls Governor George W. Bush and Senator John McCain are locked in a debate over how to use the surplus, Mr Bush favouring a tax cut and Mr McCain preferring to repay debt.
On interest rates, Mr Green span said "interest-sensitive spending has remained robust" in spite of four quarter-point increases by the Fed's policy-making open market committee. Stock and bond prices were little changed on the chairman's warnings. Investors have been expecting the Fed to raise short term rates and the view was that yesterday's testimony had not changed that outlook.
