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Greenspan Signals More Rate Increases
Wednesday July 20, 7:11 pm ET
By Jeannine Aversa, AP Economics Writers
Fed Chairman Alan Greenspan Signals Further Rate Increases With Economy on Solid Course
WASHINGTON (AP) -- Alan Greenspan signaled Wednesday that the Federal Reserve will keep pushing interest rates higher this year in an effort to keep inflation on an even keel.
The Fed chief had mostly positive things to say about the economy, but he cautioned that a big run-up in already high energy prices could throw a wrench into the outlook.
Greenspan also expressed heightened concern about "speculative fervor" in the booming housing market in some areas of the country.
For now, though, economic barometers suggest that the economy has emerged from a springtime soft spot, Greenspan told the House Financial Services Committee. The job market is improving, retail sales are picking up, business investment is firming and inflation is fairly tame, he noted.
"Our baseline outlook for the U.S. economy is one of sustained economic growth and contained inflation pressures. In our view, realizing this outcome will require the Federal Reserve to continue to remove monetary accommodation," he said, referring to further interest rates increases.
The Fed has pushed a key interest rate to 3.25 percent in nine modest, quarter-point moves. Before the Fed embarked on its credit tightening, that key rate stood at 1 percent, a 46-year low. Economists viewed Greenspan's comments as cementing another quarter-point increase at the Fed's next meeting, Aug. 9. Some believe the key rate could climb as high as 4.25 percent by the end of this year.
Greenspan is delivering his final midyear economic outlook to Congress this week. At the helm of the Fed for 18 years, Greenspan is expected to step down next year.
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Economists viewed Greenspan's comments as cementing another quarter-point increase at the Fed's next meeting, Aug. 9. Some believe the key rate could climb as high as 4.25 percent by the end of this year.But on the backdrop of rising oil prices, which is already creating a dampaner on the ecy, I doubt if it will really climb to 4.25 by year end.. unless oil prices fall drastically..
Fed lifts rates to 3.5%; no hint of pause
CBS Market Watch
- Consumer spending has strengthened, the Fed said, despite higher energy prices.
- The labor market continues to improve gradually, the statement said.
- In regards to inflation, the Fed said core inflation "has been relatively low," but that inflationary pressures "have stayed elevated."