ICH BIN EIN BERLIN PHILHARMONIKER:

Greenspan Calls Inflation-Led Spending Slump `Short-Lived' ((Bloomberg, 7/20/04)

Federal Reserve Chairman Alan Greenspan said a recent slowdown in consumer spending because of inflation ``should prove short-lived'' and that the central bank can continue to raise interest rates at a "measured'' pace.

"The expansion has become more broad-based and has produced notable gains in employment,'' Greenspan said in the text of testimony to the Senate Banking Committee. ``If economic developments are such that monetary policy neutrality can be restored at a measured pace, a relatively smooth adjustment of businesses and households to a more typical level of interest rates seems likely.''

The Federal Open Market Committee said it expects its preferred inflation measure, the personal consumption expenditures price index excluding food and energy, to rise 1.5 to 2 percent this year. The outlook, presented by Greenspan today, was the first time the FOMC gave its forecast on a core basis, emphasizing the central bankers' view that volatile food and energy prices skew the inflation outlook.

Considering that the Maestro himself has testified that thanks to factors like substitution bias the rate may be overstated by as much as 1.5% it seems obvious that the deflationary cycle proceeds apace.

Posted by Orrin Judd at July 20, 2004 3:22 PM