- The Washington Times - Wednesday, September 8, 2004


Federal Reserve Chairman Alan Greenspan told Congress yesterday that the economy has “regained some traction” after a lull in late spring, reinforcing expectations of higher interest rates when the presidential campaign enters its final stretch.

Mr. Greenspan said the economic pickup follows a “soft patch” caused, in large part, by soaring energy prices.

“The most recent data suggest that, on the whole, the expansion has regained some traction,” said the Fed chief, who offered his latest thoughts on the economy before the House Budget Committee.

The modestly upbeat assessment two months before Election Day comes as President Bush and Democratic opponent Sen. John Kerry clash over the economy and jobs.

A Federal Reserve survey of the economic climate said activity expanded in July and August. Many Fed regions reported modest growth. The St. Louis region, however, said business conditions were improving slowly; San Francisco reported solid gains.

Consumer spending, the lifeblood of the economy, showed mixed results across the bank’s 12 regions.

Economists viewed Mr. Greenspan’s comments and the latest Fed survey as signs of a third rise in short-term interest rates this year, when Fed policy-makers meet next on Sept. 21.

Economists expect the Fed to increase a key rate to 1.75 percent from 1.5 percent.

“The indications are that we are emerging from a soft spot and that Greenspan is giving a green light to another interest-rate increase,” said Ken Mayland, president of ClearView Economics.

Incumbents politicians normally are unhappy if the Fed raises interest rates close to an election.

But this time, many private economists think the Fed probably is helping Mr. Bush’s campaign by signaling an intention to keep lifting rates. Such an approach supports the administration’s view that the economy has begun to emerge from the recent slowdown.

Private economists say the economy, which grew at a 2.8 percent rate in the April-to-June quarter, picked up momentum in the July-to-September quarter, when growth ranged from 3 percent to a little more than 4 percent.

Job growth rebounded somewhat in August. Payrolls expanded by 144,000, the most since May. Still, there are 913,000 fewer jobs than when Mr. Bush took office in January 2001.

Mr. Bush says that his tax cuts have helped the economy rebound and that making them permanent will create more jobs. Mr. Kerry contends that Mr. Bush’s policies benefit the wealthy, squeeze the middle class, are not producing a significant number of jobs and have burdened the federal deficit.

The Congressional Budget Office is projecting a $422 billion deficit this year. That is a record in dollar terms, but an improvement from a January forecast for a larger, $477 billion shortfall.

Mr. Greenspan said he thought the tax cuts were well-timed to help the economy bounce back from the 2001 recession. But he agreed that the government could have taken other steps that might have provided an even bigger boost to growth. He did not elaborate.

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