Applying the Brake

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WASHINGTON, D.C.: Alan Greenspan believes the economy is growing too fast, and he's getting ready to slow it down. The Fed Chairman prepared investors for an increase in interest rates by telling a Congressional committee that he believed the Fed had to act soon to head off inflation. Speaking before the Congressional Joint Economic Committee, Greenspan said that strong economic growth so far this year, coupled with a tight labor market, will lead to inflation later unless the central bank acts soon. Greenspan specifically linked his concerns to recent reports showing unexpected strength in such areas as retail sales and job growth, which has many convinced he's ready for an increase. Stocks fell on the announcement, but not by all that much -- the Dow finished down 57.40 points, while the Nasdaq actually reversed its recent slide -- because most analysts had been expecting the move. Other economists said Greenspan would be making a mistake to raise rates, noting new trade figures showing January's overall deficit the worst since 1992. The trade gap with China alone jumped 41 percent to $3.7 billion, leading to fears that a tightening of the money supply could drive the dollar higher, making rising deficits even worse. A one-quarter point rise in rates could come as early as next Tuesday, when the Open Market Committee meets.