Greenspan Is Hopeful on Hiring Outlook
Speaking to the Securities Industry Association in Boca Ration, Florida, the U.S. central bank chief signaled U.S. interest rates likely will remain low for some time since there was no sign that companies were making price rises stick.
"In these circumstances, monetary policy is able to be more patient," Greenspan said, adding a standard caution that "no central bank can ever afford to be less than vigilant about the prospects for inflation."
At its last policy-setting meeting on Oct. 28, the Fed kept its key federal funds rate target at a 45-year low of 1 percent and said it could remain there for a considerable period, a position that Greenspan's remarks Thursday only bolstered.
Greenspan's toughest remarks were aimed at the debate over the impact of soaring government budget deficits and the need for lawmakers to grapple with the issue before America faces a wave of retiring "baby boomers" during the next decade.
"The ... relatively optimistic short-term outlook for the U.S. economy is playing out against a backdrop of growing longer-term concern in financial markets about our federal budget," Greenspan said, and recent budget talks between Republican and Democratic lawmakers were "not encouraging." Greenspan came down on the side of the Bush administration and Republicans, saying that spending restraint and not tax increases should be viewed as the best way to reduce deficits.
He deplored the loss of budget discipline among lawmakers and bluntly warned about the consequences of failing to get it into balance before more retirees begin to strain Social Security's resources and drive up borrowing costs.
"Such a development could have notable, destabilizing effects on the economy," Greenspan said.
Asked about Greenspan's comments, White House spokesman Scott McClellan repeated an administration line that deficits were not out of control and the intent was to cut them.
"The president believes that the deficit, where we are right now, is manageable and that's why he has a plan in place to address it and bring it down," McClellan said, referring to a White House contention that faster growth will generate more tax revenues to slash the deficit in half within five years.
The U.S. job market appears to be "stabilizing," Greenspan said, though after a prolonged period of weakness. Hiring needs to pick up to relieve job security fears, which could cause a reluctance to spend and so slow the pace of expansion.