WASHINGTON, Nov 6 - Federal Reserve Chairman Alan Greenspan on Thursday said an improving U.S. economic tempo should soon generate a jobs revival, but warned mounting budget deficits pose a serious long-term threat. Speaking to the Securities Industry Association in Boca Ration, Florida, the U.S. central bank chief signaled U.S. interest rates likely will remain low for some time since there was no sign that companies were making price rises stick. "In these circumstances, monetary policy is able to be more patient," Greenspan said, adding a standard caution that "no central bank can ever afford to be less than vigilant about the prospects for inflation." At its last policy-setting meeting on Oct. 28, the Fed kept its key federal funds rate target at a 45-year low of 1 percent and said it could remain there for a considerable period, a position that Greenspan's remarks Thursday only bolstered. Greenspan's toughest remarks were aimed at the debate over the impact of soaring government budget deficits and the need for lawmakers to grapple with the issue before America faces a wave of retiring "baby boomers" during the next decade.
DEFICITS CAST PALL "The ... relatively optimistic short-term outlook for the U.S. economy is playing out against a backdrop of growing longer-term concern in financial markets about our federal budget," Greenspan said, and recent budget talks between Republican and Democratic lawmakers were "not encouraging." Greenspan came down on the side of the Bush administration and Republicans, saying that spending restraint and not tax increases should be viewed as the best way to reduce deficits. He deplored the loss of budget discipline among lawmakers and bluntly warned about the consequences of failing to get it into balance before more retirees begin to strain Social Security's resources and drive up borrowing costs. "Such a development could have notable, destabilizing effects on the economy," Greenspan said. Asked about Greenspan's comments, White House spokesman Scott McClellan repeated an administration line that deficits were not out of control and the intent was to cut them. "The president believes that the deficit, where we are right now, is manageable and that's why he has a plan in place to address it and bring it down," McClellan said, referring to a White House contention that faster growth will generate more tax revenues to slash the deficit in half within five years. The U.S. job market appears to be "stabilizing," Greenspan said, though after a prolonged period of weakness. Hiring needs to pick up to relieve job security fears, which could cause a reluctance to spend and so slow the pace of expansion.
REVIVAL IN SIGHT "The odds, however, do increasingly favor a revival in job creation," Greenspan said, noting that lean inventories in many industries could bring a wave of rebuilding, which will mean a pickup in hiring. Separately. Fed Governor Ben Bernanke struck a measured tone on job prospects in an address to a global economic conference in Pittsburgh, noting "a few encouraging signs" have appeared that a lengthy jobs slump was easing. "So far these signals of recovery remain tentative; on the basis of the labor-market data alone, asserting that an employment recovery has begun would be premature," Bernanke said, though he said it was reasonable to expect some improvement in the next quarter or two." Fresh government data on Thursday reinforced a view that the economy was on the upswing. The Labor Department said new claims for unemployment benefits dipped sharply last week to a level not seen since before the economy slipped into recession in March 2001. At the same time, Labor said productivity -- the gauge of hourly output per worker -- increased sharply in the third quarter, further implying little strain on prices since high productivity restrains the costs of producing more goods. Analysts noted that Greenspan, as usual, was at pains to strike a balance between optimism about an economic pickup and worry over heightened risks that it could be undone. "He is going to be one of the last guys to be convinced that we have a recovery," said Cary Leahey, an economist with Deutsche Bank Securities in New York. "He's finding the gray lining in the silver cloud."//