Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, July 19, 1990 TAG: 9007190225
SECTION: BUSINESS PAGE: A11 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
But Greenspan tempered his pledge by insisting that he sees no signs of a recession. He also indicated the Federal Reserve is not contemplating any immediate follow-up to a small credit-easing move it made last Friday.
Testifying on the Federal Reserve's midyear assessment of the economy, Greenspan found himself caught between the opposing forces of a sluggish economy and still-high inflationary pressures.
On the one hand, he wanted to provide support for the budget negotiations between the administration and Congress by allaying fears that a tax increase and big cuts in spending could topple the country into a recession.
The administration is counting on the Fed to lower interest rates to stimulate economic growth as a way of offsetting the adverse effects of higher taxes and spending cuts.
Shortly before Greenspan testified, the Labor Department reported that consumer prices shot up 0.5 percent in June. And so far this year, inflation has been rising at an annual rate of 5.9 percent, far higher than the central bank would like.
However, Greenspan sought to play down the June inflation report, contending it was the result of temporary factors and not an indication that inflation was taking off again.
In the inflation report, grocery store food prices, which had fallen in each of the past two months, rose 1 percent in June as prices went up for all of the major food categories.
Gasoline prices, which generally increase during the heavy-driving summer months, jumped 2.5 percent last month after falling 1.6 percent in May.
Housing costs climbed 0.6 percent, the largest increase in such costs since a 1 percent rise in May 1985.
Prices for items outside the volatile food and energy sectors jumped 0.4 percent in June. Analysts consider this so-called "core" rate a better indicator of underlying inflation pressures in the economy.
New car prices edged down 0.2 percent, the fifth straight decline in the face of sluggish sales.
Clothing costs, which jumped sharply earlier in the year, fell 0.1 percent last month. That had been expected as merchants marked down summer clothing.
Medical-care costs soared 0.7 percent in June for the fifth straight month, pushing those costs 9.0 percent higher than a year ago.
The various changes put the index for all consumer prices at 129.9 in June. That means a hypothetical selection of goods and services costing $100 in the 1982-84 base period cost $129.90 last month, up from the $124.10 a year ago.
While generally agreeing with that assessment, private economists said that the Fed could not give any sign that it was relaxing its guard against inflation for fear of spooking financial markets.
In delivering the Fed's economic report Wednesday, Greenspan said that "a major cut in the budget is unquestionably the right thing to do." He said the latest efforts by Congress and the administration to come to grips with the problem had been "enormously heartening to all who are concerned about the long-run health of the U.S. economy."
While Greenspan said that the specific details of any Fed response to a deficit-reduction package would depend on economic conditions at the time, he left no doubt that the central bank would move to offset any adverse effects on growth from spending cuts and tax increases during a period of sluggish growth.
"I can only offer the assurance that the Federal Reserve will act, as it has in the past, to endeavor to keep the economic expansion on track," Greenspan said.
"The likelihood of a near-term recession seems low, in part because businesses have been working hard to keep their inventories in line with sales trends," he said.
by CNB