Posted at 9:39 a.m. PST Thursday, January 29, 1998 Greenspan: U.S. will feel Asia impact soon WASHINGTON (AP) -- The American economy has just begun to feel the impact of the financial storms swirling through Asia and will slow noticeably ``before spring is over,'' Federal Reserve Chairman Alan Greenspan said today. ``We have as yet experienced only the peripheral winds of the Asian crisis,'' Greenspan told the Senate Budget Committee in his first congressional appearance in three months. But, he said, before spring ends sharp currency devaluations in Asia will show up in this country through ``reductions in demand for our exports and intensified competition from imports.'' ``All of this suggests that the growth of economic activity in this country will moderate from the recent brisk pace,'' he said. Economists said Greenspan's remarks confirmed that the Federal Reserve has no plans to raise interest rates. ``They imply there's not a chance of a tightening move because, at the very least, Asia is weakening the economy enough to eliminate any threat of inflation,'' said economist David Jones of Aubrey G. Lanston & Co. in New York. ``And it raises the possibility of an interest rate cut sometime around mid year.'' That cheered Wall Street. Bond prices surged, pushing down the yield on the benchmark 30-year Treasury bond to 5.87 percent from 5.94 percent late Wednesday. The Dow Jones average of industrial stocks was up more than 80 points at midday. Answering a senator's question, Greenspan said he did not believe Asian turmoil to date would result in significant U.S. job losses. But he warned, ``It is very important for us to recognize that if the Asian situation does not stabilize reasonably quickly ... it will have more than a modest impact.'' Greenspan's last congressional appearance came in late October just days after the Asian crisis provoked a record 554-point drop in the Dow. At that time, he said it was conceivable the crisis could prove a ``salutary event'' for the American economy, slowing growth enough to keep inflation in check but not so much as to threaten the nearly 7-year-old expansion. He stuck with that view today. ``A moderation (in economic growth) would appear helpful at this juncture,'' he said. ``The likelihood that we shall be seeing some lower prices on imported goods as a result of the difficulties in Asia may afford some breathing room from inflation pressures.'' As recently as early October, Greenspan was warning that labor shortages created by last year's robust economic growth threatened to put the economy on ``an unsustainable track.'' However, today, he cited risks to the economy from both inflation and from too-rapid disinflation. Lower import prices ``will not permanently supress the risks inherent in tightened labor markets,'' he said. The risk is that labor shortages will drive wages up faster, forcing businesses to raise their prices more rapidly. ``Conversely, a continuation of the Asian crisis should give us pause in assuming that our economy will remain robust indefinitely,'' he said. ``As a consequence, we must be vigilant to the reemergence of destabilizing influences -- both higher inflation, and shortfalls in demand and decreases in some prices that would press the disinflation process too far, too fast.'' Greenspan addressed his remarks to a Senate panel which this year faces the happy dilemma of what to do with a projected budget surplus. President Clinton wants to use excess money to help preserve Social Security. But he also wants to spend more to build new schools and make child care more accessible. Republicans want to cut taxes. However, the central bank chairman cautioned, ``We have no guarantee that the projected surpluses will actually materialize.'' Unless steps are taken to put the Social Security trust fund on a sounder footing, Greenspan said, the budget ``will almost inevitably turn to large and sustained deficits as the baby boom generation moves into retirement.'' ``The outpouring of proposals for using the anticipated surplus does not bode well for the prospect of maintaining fiscal discipline,'' he said. ``We must not allow the recent good news on the budget to lull us into letting down our guard.'' The deficit in fiscal 1997 fell to a 23-year low of $22 billion. On Wednesday, the Congressional Budget Office released projections showing the budget remaining close to balance over the next few years and then moving into surplus until the middle of the next decade.
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