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Greenspan mum on rates
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January 26, 2000: 5:50 p.m. ET
Fed chief vows to fight inflation, offers solution to tight labor market
By Staff Writer M. Corey Goldman
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NEW YORK (CNNfn) - Federal Reserve Chairman Alan Greenspan offered no hint Wednesday as to what the Fed will do at its key interest rate meeting next week, focusing instead on the economy's "remarkable" progress.
Speaking to the Senate Banking Committee, Greenspan said he is looking forward to steering the U.S. economy into its ninth year of uninterrupted expansion characterized by low inflation.
The banking committee is currently considering whether to approve Greenspan's nomination to a fourth term as chairman of the Fed. Greenspan was scheduled to address another Senate committee on Tuesday, but the session was canceled due to inclement weather.
His remarks came less than a week before Fed policy makers are scheduled to gather for their first meeting of the year, a meeting most analysts and economists expect will result in another quarter-point increase in short-term interest rates.
"It has been an extraordinary privilege to be able to serve my country at the Federal Reserve, and I would be honored if the Senate saw fit to enable me to continue this association for another four years," Greenspan said in prepared remarks.
Marveling at productivity
Greenspan's discussion of the economy was abstract as usual and was marked by his now-familiar marveling about technological progress boosting productivity and keeping prices stable.
"For the economy overall, the marked pickup in technological innovation has accelerated productivity and raised standards of living for many -- though regrettably, not all -- Americans," he said. "Our challenge in monetary policy is to foster, as best we can, the financial conditions that will allow this economic expansion and technological revolution to continue as long, and as vigorously, as possible."
Addressing Senators' questions following his remarks, Greenspan said, that as of yet, there have been no discernable signs that U.S. productivity has reached its peak, suggesting there's still room for the economy to expand without fueling an increase in consumer prices.
"There is really no evidence at this stage that the acceleration process has as yet shown early signs of cresting," the Fed chief said, adding that, "it is far better to have this type of problem than others we have seen in the past." (462K WAV) (462K AIFF)
Tight labor markets
At the same time, that does not mean the Fed should let down its guard when it comes to being vigilant against accelerating inflation, particularly with the tight U.S. labor market, as economists call it - where there are too many jobs for too few workers. A tight labor market can fuel faster inflation as companies are forced to pay their workers more to keep them happy and on the job.
To resolve that problem, Greenspan suggested that U.S. immigration laws be relaxed, boosting the supply of available workers to fill positions. Others on Capitol Hill have also supported the relaxation of immigration laws that would allow more skilled labor from Mexico, Canada and Europe to enter the United States.
"Aggregative demand is putting very significant pressures on an ever-decreasing available supply of unemployed labor," Greenspan said. "The one obvious means that one can use to offset that is, expanding the number of people we allow in."
"Reviewing our immigration laws in the context of the type of economy which we will be enjoying in the decade ahead is clearly on the table in my judgment," he added.
Focused on the debt
As in previous sessions to Congress, Greenspan took the opportunity to pitch to Senators that any budget surplus be put toward paying down the country's national debt rather than toward boosting spending or reducing taxation levels.
"As I have said previously to this committee, because of the nature of the type of acceleration in productivity and dynamic change that is occurring in the American economy, my first priority would be to allow as much of the surplus to flow through into a reduction in debt to the public," Greenspan told the committee.
The fact that the 73-year-old Greenspan has so enthusiastically embraced another term as chief of the central bank has already put financial markets at ease, even as investors brace for at least one more rate increase in 2000. Most analysts expect the Federal Open Market Committee to raise the Fed funds target for overnight loans between banks to 5.5 percent next Wednesday.
The news also put Senators in Washington at ease, Democrat and Republican alike. Lawmakers asking the Fed chief questions following his testimony began their remarks with words of praise and respect for Greenspan. "I'm confident that the vote in the Senate will be overwhelmingly in your favor," Minnesota Republican Rod Grams told Greenspan.
Indeed, Senate Banking Committee Chairman Phil Gramm said he hopes a full vote on Greenspan's nomination will begin Feb. 1 after the Senate vote is completed. 
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