MercoPress. South Atlantic News Agency

Fed optimistic about US recovery

United States economy is emerging from a recent summer lull and seems to be recovering full force, said Federal Reserve chairman Alan Greenspan during a hearing this Wednesday before the House of Representatives Budget Committee.

Recent economic data suggest that "economic growth has regained some traction" Mr. Greenspan told the Budget Committee.

Business investment, house building and manufacturing output are in the rise while "the pace of new job creation has picked up in August", added the Fed chairman who indicated that last month's record surge in oil prices seems to have had little impact on inflation. "In spite of the surge in oil prices until mid August, inflation and inflation expectations have moderated in the last few months", emphasized Mr. Greenspan who nevertheless warned that US public finances were set to "deteriorate substantially" in the years ahead unless current spending policies changed. Last Tuesday the Congressional Budget Office said that the federal budget deficit would grow by more than originally thought over the next decade partly because of higher defence spending. The 2004 budget deficit is forecasted to reach a record 422 billion US dollars. "With the economy continuing to improve, the deficit is more likely to decline than to increase in the year ahead. Nonetheless, the prospects for the federal budget over the longer term remain troubling", highlighted Mr. Greenspan.

In Africa International Monetary Fund Managing Director Rodrigo de Rato sent a similar fiscal concern message to US authorities.

"US economy growth is certainly robust and I believe it will continue during the rest of the year and in 2005 but something must be done about the existing macroeconomic risk", insisted Mr. de Rato.

Further on he said United States must reduce current fiscal stimuli which he described as extraordinary in monetary and budgetary terms.

"Monetary stimuli have been clearly addressed by monetary authorities (Federal Reserve), but not so with budget incentives. So I believe that budget authorities must imitate the determination of their monetary counterparts in reducing the deficit".

However Mr. Rato was not so enthusiastic about the European Union economy which he said is performing below potential and must address macroeconomic imbalances.

"Europe must not make the same mistake of 1999 which was not to take advantage of recovery to improve budget balancing; it's essential for the current recovery to have a clear budget agenda to ensure sustainability and help EU's macroeconomic stability", underlined Mr. de Rato.