Speaking in what might have been his last appearance before Congress last Wednesday, Federal Reserve Chairman Alan Greenspan expressed confidence in the nation's economy and indicated additional hikes in interest rates are necessary to sustain this growth.
"Our baseline outlook is one of sustained, economic growth and continued inflation pressures," Greenspan told the House Financial Service Committee. Thus, Greenspan implied, upcoming interest rate hikes will most likely be gradual.
Nonetheless, the "significant uncertainties" that remain, Greenspan warned, include high energy prices, labor costs and the impact of long-term interest rates on housing.
Richard DeKaser, chief economist at National City, told Reuters that the Fed's comments "show a remarkable amount of confidence in the economy's prospects" and imply that "the expansion is nowhere near its final stages."
But the decline of long-term bond yields, which have refused to budge despite rising official interest rates, poses a risk to the outlook, a situation Greenspan called "without precedent." The decline in bond yields is due partially to a glut in worldwide savings, which has likely been precipitated by insufficient global investment, he added.
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