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Greenspan wary of inflation
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May 6, 1999: 11:06 a.m. ET
Fed chief says record low joblessness will cause prices to rise eventually
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NEW YORK (CNNfn) - For months, economists scratched their heads over this bedeviling question: Why hasn't the country's low unemployment led to rising inflation?
Federal Reserve Chairman Alan Greenspan picked up the query Thursday, expressing fear that record low joblessness will cause a rise in prices.
"An increase in inflation doggedly forecast to follow the ever lower unemployment rate--now the lowest in three decades -- has not occurred," Greenspan told a Fed conference on banking in Chicago.
But this rosy scenario, the nation's top banker said, won't last.
"At some point, labor market conditions can become so tight that the rise in nominal wages will start increasingly outpacing the gains in labor productivity, and prices inevitably will then eventually begin to accelerate," Greenspan said.
As he has said before, Greenspan expressed awe of the strength of the U.S. economy and the country's ability to remain buoyant amid financial crisis overseas.
Still, he issued warnings over Americans' "negative" savings rate and the nation's widening trade deficit.
"There is a limit to how long and how far deficits can be sustained," Greenspan cautioned.
The Fed chief's remarks come one day before the closely watched April payroll report. Economists see unemployment staying unchanged at 4.2 percent, a 30-year low.
Despite Greenspan's inflation warnings, most economists predict the Federal Reserve's Open Market Committee will keep interest rates unchanged when it meets later this month.
The bond market, always wary of rising inflation, fell on the Fed chief's remarks. The price of the 30-year Treasury bond was recently 25/32 lower for a yield of 5.76 percent.
Greenspan touted technology's role in increasing productivity, saying "new innovations have begun to alter the manner in which we do business and create value, often in ways not readily foreseeable even five years ago."
Still, the Fed chief said he is increasingly less concerned that the year 2000 computer bug will cause systemic computer problems.
But for all his praise and warnings, Greenspan concluded the economy contains more mystery than certainty.
"The remarkable American economy, whose roots are still not conclusively known, and the Asian crises that caught us by surprise, among other humbling experiences, have made policy-makers particularly sensitive to how fast the world can shift beneath our feet," Greenspan said. 
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