Alan Greenspan says he wants to take an even tighter grip on the economy’s wheel to steer it on a new course – away from rising prices.
The head of the Federal Reserve said yesterday he would do “what is required” to hold down inflation, indicating to some economists that he’s more hawkish than expected about eliminating cheap credit that’s awash in the economy.
The dollar strengthened on the news, and bonds fell, while stocks barely moved in reaction to Greenspan’s long-awaited comments, made to a bankers group in London.
Greenspan is expected to start hiking the government’s historically low, key interest rate of 1 percent, where it has been for a year.
He’s likely to boost the rate in five separate rounds before the end of the year – more than doubling the rate to 2.25 percent.
Many investors believe Greenspan has waited too long to increase the official rate to match real marketplace rates.
Economists believe Greenspan is prepared to boost rates even higher to as much as 3 percent if his anticipated plan of using small quarter-point hikes gradually doesn’t work to check inflation.
Inflation – excluding soaring oil and food costs – stands at 3 percent, triple last year’s core inflation rate.
“Should that judgment prove misplaced . . . the (Fed) is prepared to do what is required to fulfill our obligations to achieve the maintenance of price stability.”
He called high oil prices “a worrisome element in the cost picture,” which could be the wild card in putting on the brakes of the economy.
Crude is down $5 a barrel from its record high last week of $42.45 a barrel, closing at around $37 a barrel.
The dollar rallied against the euro to around $1.2265. Earlier the euro had touched a two-month high at $1.2351.
In light trading, the Dow Jones industrial average gained 41.44, or 0.40 percent, to 10,432.52. The Standard & Poor’s 500 Index rose 1.76 points, or 0.15 percent, to 1,142.18. The Nasdaq added 2.91 points, or 0.14 percent, to 2,023.53.