Greenspan to Testify Before Congress
Federal Reserve Chairman Alan Greenspan’s testimony before Congress this week may offer a clue on whether a series of interest rate increases is almost over.
The Labor Department last week reported U.S. employers added a net 78,000 jobs last month, fewer than expected, while the unemployment rate dropped to the lowest level since September 2001, fueling a debate about whether the Fed will soon stop raising interest rates. The Fed’s policymaking Federal Open Market Committee next meets June 29-30.
“The markets will be focused almost exclusively on Fed Chairman Alan Greenspan’s appearance on Capitol Hill,” said Paul Ashworth, international economist at Capital Economics Ltd. in London. “What the markets want to know is whether the incoming data since the last [committee] meeting in early May has persuaded the committee to end its policy of measured rate increases sooner rather than later.”
Greenspan is scheduled to share his view of the economy with legislators Thursday.
“If the Fed is thinking of calling a halt to rate increases, either after the June or August meetings, then Greenspan may want to take the opportunity this week to prepare the markets,” Ashworth said.
The increase in payrolls last month was the smallest since August 2003 and less than half the median forecast of economists surveyed by Bloomberg. A separate survey of households, which determines the jobless rate, showed 1.3 million people found jobs in the last three months, about three times the number reported by the poll of businesses.
Economists disagree on how the jobs numbers might influence interest rate policy.
“We see nothing in this report to change the Fed’s strategy of raising interest rates at a gradual pace and we do not expect a significant change in language at the June [committee] meeting -- although we will be paying close attention to Greenspan next Thursday,” said John Ryding, chief U.S. economist at Bear Stearns & Co. in New York.
“The Fed will soon pause,” said Sherry Cooper, chief economist at BMO Nesbitt Burns in Toronto. “When Alan Greenspan speaks before the Joint Economic Committee of Congress next week, he is likely to signal that the Fed is nearing the end of its current tightening cycle.”
