WEST PALM BEACH, FL (HEDGECO.NET) – The Chairman of the Federal Reserve Board, Alan Greenspan told a House Committee on Financial Services that the US economy is poised for vigorous growth. Theeconomy turned the corner last year, and has now entered a stage of vigorous expansion, the fed chief said “Last year appears to have marked a transition from an extended period of sub par economicperformance to one of more vigorous expansion, looking forward; the odds of sustained robust growth are good, although as always, risks remain.” Greenspan also said, �the U.S. economic outlook wasupbeat, the picture has brightened”.
The Federal Reserve board projects that the US economy would grow by as much as 5% in 2004, adding that the US Gross Domestic Product [GDP] would be in the range of 4.5-5%, representing the best growth numbers since the early years of the decade of the eighties.
Greenspan however sounded a warning about the growing US deficits, according to him; no group has yet created a realistic plan to tackle the deficit problem. He explained, “Although some stirrings in recent weeks in the Congress and elsewhere have been directed at actions that would lower forthcoming deficits, to date no effective constituency has offered programs to balance the budget.”
If government fails to curb the growing deficit, it could create both short and long term problems for the US economy. He also warned about the shortfall between the growing economy and lagging job creation. Greenspan said that the Bush administration new job creation numbers [2.6 million] new jobs in 2004 are realistic; however there is no new evidence that companies have started hiring new workers yet.
Greenspan also cautioned about government expenditures, and the difficulties ahead in meeting government fiscal projections without increasing revenues. The Fed Chief said, “The longer-term problem is on the expenditure side, and that’s a fact in the sense that you cannot, without looking at the data, see that we have very considerable difficulty in meeting the long-term projections for the commitments we have made without a significant increase in tax rates”.
The Fed Chief addressed short term benefits of the declining dollar, according to him, the drop in the dollar would help to reduce the imbalances in the US current account gap.
Paul Oranika
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HedgeCo.Net
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