Greenspan Signals Further Rate Increases (addresses housing bubble issue)

[DeepModem Mom]

WP/AP:
Greenspan Signals Further Rate Increases
By MARTIN CRUTSINGER
The Associated Press
Wednesday, July 20, 2005; 11:08 AM


WASHINGTON -- Federal Reserve Chairman Alan Greenspan said Wednesday the economy should enjoy sustained growth with low inflation in coming months, a strong condition that will require continuing incremental increases in interest rates.

Greenspan delivered an upbeat assessment of the economy's prospects in an appearance before Congress, saying the country weathered a brief slowdown in the spring when inflation appeared to be on the rise.

And he made clear in his final midyear economic report to lawmakers that the Federal Reserve Board would continue raising interest rates at the same gradual pace it has for the past year....

***

Greenspan listed three major threats to this economic outlook _ the possibility that wage pressures, which have been dormant, will intensify; the threat posed by surging energy costs and the dangers posed to such sectors of the economy as housing if long-term interest rates rise significantly....

***

It marked Greenspan's most extensive comments on the possibility that the surge in housing prices in parts of the country could be creating a speculative bubble similar to the one on Wall Street that burst in early 2000....


http://www.washingtonpost.com/wp-dyn/content/article/2005/07/20/AR2005072000646.html

[cliss]

1. A key sentence

to help readers understand where they are coming from: "...major threats to the economic outlook.....wage pressures, which have been dormant...."

Policy makers LOVE it when people get laid off, when they earn really crappy wages, when they get a 10cent raise.

Because it keeps inflation down. Reagan felt that you absolutely need a fairly large contingent of poor people. Why? Because poor people don't buy very much stuff. They wear rags, they shop at the junk store, they eat rice for months at a time.

Wall Street hates inflation.