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Rivlin expects slowdown
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January 12, 1999: 10:06 p.m. ET
Fed Vice Chair sees disappointing earnings to come
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NEW YORK (CNNfn) - With markets at such dizzying heights, investors are wondering what sort of bad news is required to return shares to less lofty levels.
Alice Rivlin, vice chair of the Federal Reserve, said that there's no market-deflating news in Tuesday's producer price index figures. But there could be more disappointing earnings information coming soon.
Here is her "Moneyline" interview:
ALICE RIVLIN, VICE CHAIR, FEDERAL RESERVE: Glad to be here.
JAN HOPKINS, CNNfn ANCHOR: Let's start first with this Labor Department report on inflation -- the PPI. Does this indicate that inflation is coming back?
RIVLIN: I don't think so. It's largely tobacco prices and that was something we already knew about. I don't think there's any new news here.
HOPKINS: Now, we've been seeing a lot of signs of strength in the economy, including the labor report last week, and everyone's been expecting the economy to slow down. Where is this slowdown?
RIVLIN: Well, it's very hard to see in the current data. Everyone expects it. I still expect it, but we haven't seen it yet.
HOPKINS: You do still expect it?
RIVLIN: I do. I don't know how rapidly, but certainly the economy is unlikely to grow at the pace that it did in the second half of last year.
HOPKINS: Now, in terms of the stock market, I'm wondering if you think that there's investor exuberance going on in the stock market at this point?
RIVLIN: Well, prices in the stock market are clearly very high. You have to be very optimistic about earnings to justify those prices, but that's been true for a while.
HOPKINS: And is it likely that Chairman Greenspan might say something about the stock market when he testifies before Congress?
RIVLIN: Oh, I don't know. He doesn't testify for -- till early February, and heaven knows what will happen between now and then.
HOPKINS: So your sense about the stock market is that investors are optimistic about earnings, and your sense is that earnings are going to disappoint?
RIVLIN: Well, earnings were lower last year than the year before, and all the signs point to somewhat disappointing earnings as we move ahead.
HOPKINS: Is there anything that the Federal Reserve can do, other than raising rates, to dampen the enthusiasm in the stock market, or do you just sit back and watch?
RIVLIN: Well, the chairman has occasionally expressed views, but the last time he did that it was a very temporary effect. So I think one has to sit back and watch. The Fed tries to concentrate on the whole economy, and what's likely to happen to it. We lowered rates in the last part of last year because we thought the economy was slowing down -- it might slow down too much.
HOPKINS: You are, presumably, watching events around the world. Are you watching with concern what's going on in Brazil?
RIVLIN: Of course. I think everyone is pulling for the Brazilians to get their economy together and fulfill the promises that they made in connection with the IMF plan.
HOPKINS: What impact, though, does instability in Brazil have on the U.S.?
RIVLIN: Well, it depends what happens. Instability in Brazil, if it spread to the rest of Latin America -- and it might, because Brazil is a very important economy in Latin America -- could have important ramifications, both for them and for us.
HOPKINS: Thanks very much. Alice Rivlin, vice chair of the Federal Reserve, thanks for joining us. 
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U.S. Federal Reserve
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