- The Washington Times - Thursday, April 18, 2002

Federal Reserve Chairman Alan Greenspan said yesterday that he doesn't foresee a "jobless recovery" like the one after the 1991 recession and that the economic upturn is on track, even though rising oil prices have put a damper on consumer spending.
"I'm not concerned about chronically elevated levels of unemployment," the Fed chairman told the Joint Economic Committee of Congress, noting that the job market already is showing signs of improvement.
Unemployment for the past few months has ranged between 5.5 percent and 5.75 percent and has stopped rising sharply, as it did during 2001 as well as during the last recession, he noted.
Unemployment should return to the extraordinarily low levels seen in the late 1990s, below 4 percent, as growth picks up and high levels of productivity continue, he said.
A threat to the recovery that emerged in recent weeks is the spike in oil prices to as high as $28 a barrel. But Mr. Greenspan said he doesn't think the price increase has been big enough or prolonged enough to derail the economy.
The higher energy prices are "sapping the purchasing power of households," but the effect on the economy "will be limited" as long as prices stay in the current range, he said. Prices for regular, unleaded gasoline have been hovering close to $1.50 a gallon this month.
But Mr. Greenspan said, "A price hike that drove oil prices well above existing levels for an appreciable period of time would likely have more far-reaching consequences."
Some economists are warning that the spike in oil prices is delivering a shock to the economy when it is still fragile, posing a danger of throwing it into a "double-dip" recession.
"There remains a significant risk that the economy will dip back into recession," said David Wyss, chief economist at Standard & Poor's Corp.
"The most likely cause would be an external shock, either in the form of another terrorist attack or expanding conflict in the Middle East, which could send oil prices sharply higher," he said.
Economists estimate that the Middle East turmoil has added about $5 a barrel to oil prices, an increase that will shave about 0.25 percentage points off the growth rate if it is sustained. But that would still leave a robust rate in the first quarter, which economists say likely posted growth of more than 4 percent.
Mr. Greenspan noted that the high energy prices are hitting businesses and consumers in their pocketbooks just when increased spending power is needed to keep the recovery going. Another cloud hanging over consumers is their high levels of debt, he said.
Still, the outlook for the economy overall is "brightening," he said, as signs of growth have started to return to even the most troubled sectors, including manufacturing and technology.
Mr. Greenspan indicated that the Fed will avoid raising interest rates for another two to four months the time he said it would take to be sure that a solid recovery is in place.
A turnaround in manufacturing in the last quarter as businesses depleted their inventories and started placing new orders for goods should produce a big bounce in growth in the quarter, he said.
But whether that growth is the beginning of a full-fledged recovery depends on whether the increased manufacturing activity produces sustained gains in income and spending, he said.
"It's like a first-stage rocket carrying you up to a certain point and then a second-stage rocket essentially carrying you further. We are in the first-stage rocket," he said.
Mr. Greenspan once again resisted Democratic efforts to get him to renounce last year's tax cuts in light of the government's plunge back into budget deficit this year.
The Fed chairman stated explicitly for the first time that he views tax cuts as a good instrument to counter recessions.
In past years, Mr. Greenspan was skeptical that Congress would be able to act in time to be of much help during a downturn. But yesterday he said last year's tax cut was well-timed and helped to produce this year's recovery.
Meanwhile, Mr. Greenspan warned Congress that the double-digit growth of spending that, along with the recession, has caused a return to short-term deficits cannot continue.
"I think we have to be very careful about going back into deficit spending, which is very easy to do," he said.
Congress has only a few years to prepare for the retirement of the baby boomers, when spending on Social Security and Medicare will skyrocket, and it should start laying long-term budget plans now, he said.

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