WASHINGTON - Dismissing fears that the economy was weakening, Alan Greenspan strongly signalled yesterday that the US short-term interest rates would continue to climb.
After he spoke, the dollar hit a nine-month high against the euro, while sterling also weakened slightly.
Greenspan also identified the federal budget deficit, rather than the country's huge trade deficit, as his greatest worry. The US economy was on "a firm footing" and inflation was under control, the Federal Reserve chairman said.
In testimony to the Joint Economic Committee of Congress, he indicated the central bank could continue to tighten policy at "a measured pace".
His carefully crafted language was instantly taken by markets as confirmation that further 25 point basis point increases in the central bank's federal funds rate are in the pipeline - starting with the next meeting of the policy-making Federal Open Market Committee (FOMC) on 29 and 30 June.
Since June last year, the FOMC has lifted the benchmark rate by 25 points at each of its eight meetings, raising from a 45-year low of 1 per cent to 3 per cent.
Most analysts expect at least two further such moves, bringing the rate to the "neutral" range of 3.5 per to 4.5 per cent, at which its effects are neither expansionary nor restrictive.
Greenspan also seemed to overrule the baseball-derived comment of Richard Fisher, the new governor of the Dallas Federal Reserve Bank, that the central bank was in the "eighth inning" of its restrictive cycle.
Given that a standard baseball game has nine innings, the implication was that a rise at the end of this month would be the last of the series.
That appears unlikely. Speaking about the budget deficit, Greenspan said: "What our concern has got to be ... is if we continue to build up net claims against US residents which must be serviced."
That was "the major issue which we have to worry about".
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US dollar strengthens on Greenspan's rate signals
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