Fed Chief Defends Globalization
Federal Reserve Chairman Alan Greenspan strongly defended the process of globalization on Tuesday, warning that efforts to halt the growing economic connections between nations would disrupt the effort to spread prosperity worldwide.
"The bottom line of all the evidence we can marshal is that (globalization) has been a major force in increasing living standards in the United States and around the world," Greenspan told the House Banking Committee.
Greenspan said policymakers must "avoid like the plague" doing anything that would undermine this process because trade barriers or other government intervention in the operation of free markets would hurt the effort to boost living standards.
Greenspan's comments came during his appearance before the House Banking Committee to deliver the Fed's updated economic forecast. His prepared testimony was identical to remarks he made last week before the Senate Banking Committee.
In those remarks, Greenspan said he believed America's record-breaking economic expansion may be slowing to a more sustainable pace.
While Greenspan's testimony has been seen as lessening the chances that the Fed will boost interest rates at its next meeting, Greenspan said in response to a question Tuesday that the Fed's decision on Aug. 22 will be determined by the economic reports released in coming weeks.
He said that recent reports have indicated that consumer spending, which accounts for two-thirds of total economic activity, has started to slow in response to the Fed's earlier rate increases. But he said it was too soon to know whether that slowdown in the spring was accelerating or whether the economy in the summer was staging a rebound.
"But we will know more at our next meeting and at that time, we will make a judgment" on what to do with interest rates, Greenspan said.
The Fed has raised interest rates six times in the past 13 months to slow growth and keep inflation pressures in check, but it passed up the chance to raise rates for a seventh time at its last meeting on June 27-28.
Greenspan repeated in his comments Tuesday a belief that the pace of spending by consumers on goods and services may be moderating, helping to bring demand more in line with the economy's ability to produce.
"It is clear that, for the time being at least, the increase in spending on consumer goods and houses has come down several notches, albeit from very high levels," Greenspan testified.
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