Rates are too low, says Fed
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Your support makes all the difference.ALAN Greenspan, chairman of the US Federal Reserve Board, said yesterday that real US short-term interest rates were 'abnormally low' and the Fed would this week review when rates should be raised.
Mr Greenspan did not suggest that a rise in short-term rates was imminent. But he told the joint economic committee of Congress that 'at some point, we will need to move rates to a more neutral stance.'
Short-term US rates have not been raised in five years and Mr Greenspan's remarks indicate that the Fed, whose policymakers meet on Thursday, will debate under what conditions to shift from a loose monetary policy in view of the acceleration of economic growth. At around 0.6 per cent, the US has the lowest real short-term rates in the Group of Seven industrialised countries and the strongest growth performance. The benchmark official interest rate, the Fed Funds rate, stands at around 3 per cent.
Mr Greenspan warned, however, that long-term US bond rates, at around 6.20 per cent, were priced higher than seemed to be justified by the present inflation figures. 'There is a fairly significant inflation expectation still embedded in the price,' he said. 'The underlying long-term economic outlook in this country is improving quite measurably,' he said.
Official figures yesterday suggested that Americans were spending more than they earned. Personal incomes grew by 4.7 per cent in 1993 after a 0.6 per cent increase in December but were outstripped by spending, which rose by 6.1 per cent in 1993 following a 0.5 per cent rise in December.
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