Greenspan is Worried About Economy & Energy

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Thursday June 28, 11:29 pm Eastern Time Greenspan Urges Energy Market Development By Meredith Grossman Dubner

CHICAGO (Reuters) - Federal Reserve Chairman Alan Greenspan said on Thursday he hoped current short-term energy supply problems in the United States can be settled without further damage to the economy, but said more attention must be paid to energy market developments.

In a speech to the Economic Club of Chicago in which he backed more use of nuclear power -- a shift advocated by the Bush administration -- the Fed chief said spikes in oil prices preceded the last three U.S. recessions in 1990-91, 1980-82 and 1974-75.

``As a consequence, we at the Federal Reserve are especially attentive to developments in energy markets and their effects on the behavior of households and businesses,'' he said. But the Fed chief noted some recent signs of improvement in energy prices, which he said were down from first-quarter levels.

Greenspan's remarks to the $125-a-plate dinner for 2,500 dealt strictly with energy prices and their impact on the economy. They did not directly address monetary policy.

During a question-and-answer period following the speech, which came a day after the central bank cut interest rates a quarter of a percentage point, Greenspan did say that the technological revolution has caused an acceleration in the pace of company decision-making. Monetary policy must speed up to accommodate this, he said.

He added that ``the actions that the Federal Open Market Committee has taken since the beginning of the year essentially reflects that view.'' The Fed has cut rates six times this year, dropping them by a total of 2-3/4 percentage points.

CALIFORNIA A WORRY

Greenspan said California's highly publicized power crisis was unlikely to be settled quickly, since new supply will not come on line soon enough to prevent disruptions this summer.

``This is a worrisome situation for Californians, certainly, and because the state comprises one-eighth of our national GDP (gross domestic product), it should be a concern for the U.S. economic outlook as well,'' he said in a speech which overall had a relatively optimistic tone.

``The short-term energy problems we are experiencing for gasoline, natural gas and electric power will be resolved, one hopes, without any further adverse impact on our economy,'' Greenspan added, saying that the problems have focused renewed attention on the long-term prospects for U.S. energy markets.

Higher energy prices have added significantly to corporations' costs over about the past year but only a small part of these have been passed on in prices, Greenspan said. He noted that overall energy prices softened in April and May from first-quarter levels and said this suggested ``some easing in pressures on profit margins from energy this quarter.''

Costlier energy has a ripple effect throughout the economy, including on profits of non-energy companies, Greenspan said. ''This effect is particularly important because a stabilization of profit margins and cash flow will be critical to an eventual firming of capital investment,'' he noted.

The Fed has cited weaker corporate profits and capital investment spending as key reasons behind its decision to reduce U.S. interest rates six times so far this year.

NUCLEAR POWER SAFER, CLEAN

Greenspan said more attention should be paid to using nuclear plants to generate electricity.

``Given the steps that have been taken over the years to make nuclear energy safer and the obvious environmental advantages it has in terms of reducing emissions, the time may have come to consider whether we can overcome the impediments to tapping its potential more fully,'' he said.

Greenspan's comments came hours after President Bush sent his plan to boost energy output to Congress. The proposal outlines measures to increase coal, oil and nuclear power output while also offering conservation incentives. The plan is expected to be debated in July in the House of Representatives.

Bush's proposal was unveiled last month against the backdrop of soaring energy prices and electricity shortages in blackout-hit California. Since then, gasoline prices have fallen significantly.

In a lighter moment at the event the dedicated Fed chief, when asked how he blew off stress, said he did so by being a ''hard swinger'' on the golf course and tennis court. He said that in golf, he may ``swing a little harder'' than he perhaps should but he finds it a ``wonderful way'' to get rid of stress.

But Greenspan finds study refreshing as well. He said he finds it relaxing to research subjects that do not directly relate to monetary policy, including researching the energy speech he delivered to the dinner, which was attended by a veritable who's who of Chicago's business elite including the chief executives of McDonald's and Sears.

``It may seem crazy to a lot of people, but I find that relaxing,'' he said, eliciting a laugh from the audience.

-- CAkidd (CAkidd_94520@yahoo.com), June 29, 2001


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