Dow Bullish On Greenspan

  • Share
  • Read Later
WASHINGTON, D.C.: After a week of rollercoaster rides on Wall Street triggered by inflationary fears and poor earnings reports, investors were dealt a piece good news Thursday when Federal Reserve Chairman Alan Greenspan indicated that the central bank may not raise interest rates at its August meeting. Greenspan told the Senate Banking Committee that a moderation in economic growth could restrain inflation on its own. The Dow Jones Industrial Average jumped 87.30 points to close at 5,464.18 in response to Greenspan's testimony. "Greenspan is very sensitive to what has happened the last few days on Wall Street and recent economic reports that led him to believe that the economy is not growing as fast as it had been," TIME's Bernard Baumohl reports. "It seems like the Fed now may not raise interest rates in August because inflation remains dormant. It doesn't mean he won't raise rates in the future, but he hasn't seen enough evidence of inflationary pressure building to raise interest rates." The Fed is predicting the economy will grow at a rate between 2.5 percent and 2.75 percent this year, before declining to between 1.75 percent and 2.25 percent next year. At the same time, inflation is expected to be between 3 percent and 3.25 percent this year, falling to between 2.75 percent and 3 percent next year. Greenspan theorized on why inflation was remaining steady, despite strong economic growth. He ran through a list of forces restraining inflation, including global competition and job insecurity that has led workers to accept smaller wage increases. "Greenspan has acknowledged that the U.S. and world economies are undergoing a fundamental change," Baumohl reports. "This permits the U.S. economy to grow faster than expected without heightening inflationary pressures." Jenifer Mattos