Greenspan Says Sustained Expansion Ahead, Deficit A Menace

By Agence France-Presse Federal Reserve Chairman Alan Greenspan said Feb. 11 the U.S. economy has embarked on a "vigorous" expansion but the outlook is menaced by massive budget deficits. "Looking forward, the odds of sustained robust growth are good, although, as always, risks remain," Greenspan said, submitting the brightest outlook in years to a House of Representatives panel. "Last year appears to have marked a transition from an extended period of subpar economic performance to one of more vigorous expansion." Greenspan presented a twice-yearly central bank report, which forecast growth of 4.5% to 5% in 2004. But the powerful central bank chief warned that runaway budget deficits were a threat. President George W. Bush's spending plans foresee a record $521 billion deficit for fiscal 2004 ending Sept. 30 and a shortfall of $364 billion in 2005. Long-term, the deficit risks creating serious difficulties paying for the baby-boom generation as it retires, Greenspan said. "The longer we wait before addressing these imbalances, the more wrenching the fiscal adjustment ultimately will be," he told the financial services committee. But the deficit also created short-term risks, because long-term rates were swayed by financial market expectations, he said. Despite strong economic growth, hiring had so far lagged far behind, Greenspan said. "Unless I am mistaken, my view is that this pattern is about to change," he said, because as companies gained confidence in the economy they would "surely" hire again. Grilled by lawmakers over the loss of U.S. manufacturing jobs because of stiff competition from Chinese exports, Greenspan cautioned against singling China out. "I don't disagree that is indeed happening," Greenspan said. "I am merely saying if China stopped exporting to the United States that others would take up the slack." While refusing to tip the hand of the Fed, Greenspan said interest rates -- now at a 45-year low -- would eventually have to rise toward a "more neutral" level. Copyright Agence France-Presse, 2004