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February 21st 2005

Greenspan foreshadows interest rate hike

In his semi-annual testimony before Congress, Alan Greenspan reinforced beliefs that America’s economy will grow between 3.75% and 4% this year, with inflation expected to be around 2%. While he did not explicitly acknowledge a near-term hike in interest rates, one must look no further than the futures market to realize that such hikes are probably imminent. In all likelihood, the fed will continue to coax interest rates upwards at a ‘measured’ pace, from the current 2.5% towards a ‘neutral’ target of 3% – 5%.  Greenspan also offered his opinion on George Bush’s proposed overhaul of the American social security system. Such an overhaul, he reckoned, would force the US to borrow $1-2 trillion in the short term, and add to the already significant downward pressure on the USD. Reuters Reports:

Greenspan said he would consider a $1 trillion debt increase large. Some estimate the Bush proposal could require twice that amount of new borrowing over the next decade, spurring opposition because the country already is running record budget and trade deficits.   

Read More: Greenspan: US rates low; budget discipline needed

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Posted by Adam Kritzer | in Central Banks | No Comments »

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