Greenspan’s testimony suggests “more of the same”

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Thursday, February 17, 2005

Alan Greenspan, Chairman of the Federal Reserve has suggested that there will be more of the same in coming months from the Fed. In his speech during testimony before the U.S. Senate Banking Committee on Wednesday, Mr. Greenspan noted that the economic fundamentals of the U.S. appeared to be stable. On Thursday, Greenspan spoke before the U.S. House Committee on Financial Services and when faced with questions regarding Social Security reform issues, he hinted that he was in favour of partial privatization of Social Security – but the general consensus on Wall Street is to expect more of the same.

However, economic advisors were somewhat disappointed that most of the testimony in both speechs was focused on the upcoming Social Security reform and did not address monetary policy as broadly as they’d hoped. Mike Moran, chief economist at Daiwa Securities America Inc, is quoted in the Investors Business Daily as saying “Chairman Greenspan provided few explicit insights into his plans for monetary policy.”

Greenspan reiterated his concerns about market reactions to the burgeoning federal deficit. “We are not sure to what extent and how much the market will respond,” he said.

Parsing Greenspan’s reports to Congress is a Wall Street obsession, but the general consensus from his recent testimony is to expect little change in the current Fed policy. Economists expect “measured” hikes to the central bank’s short-term interest rates from the next few meetings of Fed policy-makers.

“In my view the bottom line is that we are in for more of the same,” said Steve Stanley, chief economist at RBS Greenwich Capital to the Associated Press.

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