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Greenspan: Growth stronger, Fed can be patient
Wednesday February 11, 11:16 am ET
NEW YORK, Feb 11 (Reuters) - The following are comments from debt and currency market analysts on Wednesday after Federal Reserve Chairman Alan Greenspan told legislators in Washington, D.C. the U.S. economy has turned the corner to more vigorous growth.
The Fed chairman, noting the central bank can remain patient on monetary policy, laid out growth forecasts on the high end of recent ranges indicating the Fed still sees growth accelerating without threatening to stoke inflation. CHRIS RUPKEY, SENIOR FINANCIAL ECONOMIST, BANK OF TOKYO MITSUBISHI, NEW YORK:
"The headlines have given us an initial lift. The key seems to be rates are set appropriately. He did say employment will be increasing soon, but not in any worrisome way, so there is a small relief rally in bonds.
"But the reference that policy could become 'improperly calibrated to economic developments' -- that doesn't sound good to me. That sounds like a shot across the bow. That suggests they are cushioning the blow and they're letting people know there will be a time when policy accommodation will be removed. Bond could come back when that sinks in."
GARY THAYER, CHIEF ECONOMIST, A.G. EDWARDS & SONS, ST. LOUIS, MISSOURI:
"Greenspan's statements seem to be consistent with what the Fed said after the last Federal Open Market Committee meeting on Jan. 28. The Fed said they can be patient in removing current accommodative policy. So that supports the idea that the Fed is still pleased with what they're seeing in the economy now.
"They increased their expected growth rate for the economy this year. They're now calling for 4.5 to 5 percent inflation adjusted growth in 2004, compares with 3.75 to 4.75 percent that they forecast for 2004 last July. It's at the high end of that previous forecast and consistent with the type of economic data we've seen more recently.
"I think he is hinting that policy will have to be raised to a more neutral level at some point, but they don't have a set formula for when they think that is necessary. They'll be watching developments and will be flexible in response to the conditions that develop. I think the Fed is not as worried about deflation as they appeared last spring. In December, they said the risk of inflation was balanced between inflation and deflation."
MARK VITNER, ECONOMIST, WACHOVIA SECURITIES, CHARLOTTE, NORTH CAROLINA:
"It doesn't look like there are any surprises here. The economy is moving in the right direction. Employment is not recovering as quickly as in the past, but we have every reason to believe it will. But, the Fed is looking at potential stumbling blocks to the recovery, like energy prices. The Fed is saying it is still cautious.
"The inflation forecast is really low. I didn't see anything that suggested the Fed is in a hurry to raise interest rates. They still the economy as vulnerable to exogenous shocks. In that scenario, the Fed is going to err on the side of being a little too easy than tightening too soon. There's no upside to tightening too soon."