Greenspan Hints At Speedier Rate Hikes

By Agence France-Presse U.S. Federal Reserve Chairman Alan Greenspan hinted June 8 that U.S. interest rates might rise more sharply than had been thought, a move that could dampen growth in the United States at a time when momentum in Europe is flagging in the face of higher oil prices. Greenspan's warning, delivered by satellite to a London panel of central bankers, came as leaders from the Group of Eight industrialized powers gathered in the United States to discuss world affairs and the potential damage to economic recovery if energy costs do not come down. The Fed chairman described a recent spike in oil rates as "a worrisome element" that could prove to be a drag on growth while serving to exacerbate overall inflation. Greenspan said that U.S. borrowing costs would have to rise to more normal levels after a long period of super-low rates to stimulate the economy and protect against deflation. A move on rates by the Federal Open Market Committee (FOMC), he added, would be "at a pace that is likely to be measured," based on the Fed's current analysis of near-term economic prospects. But he warned that "should that judgment prove misplaced . . . the FOMC is prepared to do what is required to fulfill our obligations to achieve the maintenance of price stability so as to ensure maximum sustainable economic growth." Greenspan's counterpart at the European Central Bank, Jean-Claude Trichet, stressed that the ECB would remain "vigilant" in the face of oil market volatility and said the bank was confident that inflation this year would come to less than the ECB's target of 2%. Copyright Agence France-Presse, 2004

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