Summertime ó and It's Not Easy on Alan Greenspan

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Alan Greenspan must be the father of this rambunctious economy ó itís even starting to talk like him. The economic bulletins that came out Thursday morning, at least, were pure Greenspan-speak: equal parts optimism and fear. U.S. economic growth slowed sharply to 2.3 percent for the second quarter, which puts the Fed chairman at ease about an inflationary overheat. Thatís good. But Greenspanís current bogeyman Ė- the ever-tightening labor market ó is scratching at the closet door again; the Employment Cost Index for Q2 rose a bigger-than-expected 1.1 percent. Thatís bad. To the markets, as usual, Thursdayís glass looked half empty at best; the bond market tumbled and the Dow went down with it, falling 240 points by mid-afternoon. The interest rate watch is on again.

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"The markets obviously took the ECI news as a sign that Greenspan would start leaning again toward a quarter-point hike," says TIME Wall Street columnist Daniel Kadlec. "His main worry for a long time now has been the labor market, and this was a strong sign of trouble." But will the Fed chairman pull the trigger? Just two weeks ago the horizon was crystal clear and Greenspan was ready to head off to the islands for the summer. But donít look for him to move unless he really has to. "Raising rates makes the dollar stronger, which would exacerbate the current problems in Argentina and Latin America as a whole, which could come back to hurt the U.S.," says TIME senior economics reporter Bernard Baumohl. "Greenspan wonít hike without some very strong evidence of inflation." Sounds like itís time for a long father-son heart-to-heart.