Greenspan Upbeat on Continued Gains in U.S. Productivity

High rates of productivity growth that have helped boost the U.S. economy’s performance and hold down inflation show few signs of tapering off, Federal Reserve Chairman Alan Greenspan said Friday.

Giving an optimistic assessment of the prospects for continued strong U.S. productivity gains, Greenspan told a meeting of central bankers and economists that technological developments had helped raise the rate of productivity growth.

But that pace of growth--U.S. productivity outside the farm sector grew at a blockbuster rate of 5.1% in the second quarter from a year ago--will inevitably slow “at some point in the future,” he cautioned. In the past, bursts of innovation have caused explosive productivity growth, which has eventually tailed off.

“It is still hard to find credible evidence in the United States that the rate of structural productivity growth has stopped increasing,” Greenspan told the top-level conference.

Greenspan said that even when the “virtuous cycle” of strong growth and low inflation that has fueled the longest-ever U.S. economic expansion starts to fade, the more efficient ways of doing business achieved through technology will persist.

The outlook for technology-driven productivity growth rates has grabbed center stage in the debate about the future of U.S. short-term interest rates, which are now at their highest level in almost a decade as the Fed has tried to keep a lid on inflation pressures in the still-booming economy.

Greenspan was speaking just three days after the U.S. central bank decided to keep rates on hold for now, but warned it may need to raise them again should price pressures pick up. His speech Friday did not deal directly with the immediate rate outlook.