Market Expects Fed's Greenspan To Succeed in Slowing Economy
Alan Greenspan has made a "preemptive attack on economic growth - not on inflation," says economist Arnold Moskowitz. "He definitely doesn't like strong growth. There is no inflation."
Many economists say the Federal Reserve chairman will get what he wants - slower growth later this year.
His aim: to snuff possible inflation by making it hard for firms to raise prices and for workers to seek raises.
Mr. Moskowitz, a Palm Beach, Fla., financial consultant, predicts growth in real domestic product, the national output of goods and services, will slip from a 4 percent annual rate in the first quarter to a 2.5 percent rate in the last half of the year.
That prospect is one reason for the stock market slump. It means slower growth in corporate profits.
If the economy doesn't slow, Mr. Greenspan and his policymaking colleagues at the Fed will raise interest rates again soon, analysts say.
Moskowitz predicts a second 0.25 percentage point boost in interest rates at a Fed meeting May 25, and perhaps a third of the same amount in July. These would change the federal funds rate - the rate banks charge each other on overnight loans.
But opinions differ. "Maybe the Federal Reserve won't have to raise interest rates again," says Gary Thayer, senior economist at A.G. Edwards & Sons in St. Louis, looking at the employment numbers for March, which were released Friday.
Those statistics show the unemployment rate dropping to 5.2 percent from 5.3 percent in February and 5.4 percent in January. Job growth was moderate. Payrolls increased 175,000, somewhat less than the 200,000 anticipated by many economists.