Fed chief hints rates may have to rise

The chairman of the Federal Reserve, Alan Greenspan, yesterday hinted that the US central bank could reverse the cuts to American interest rates which stabilised the world's financial markets at the height of the global economic panic last autumn.


The Fed reduced US interest rates for three successive months at the height of global financial panic last autumn, an action credited with restoring stability to world markets. US base rates now stand at 4.75 per cent.


But the US economy is enjoying its eighth year of record growth levels and some analysts have been concerned that low interest rates could spark an inflationary boom. In the last three months of 1998, the US economy expanded at an annual rate of 5.8 per cent.


Mr Greenspan told a Senate committee that the Fed was evaluating whether the cuts it made to interest rates were still appropriate.


The economy's performance made it clear that the 'party is over' for interest-rate cuts, said David Resler, managing director at Nomura Securities International.


Mr Greenspan suggested the Fed could move either way on rates. But the markets reacted adversely to his comment that 'the Federal Reserve must continue to evaluate whether the full extent of the policy easings undertaken last fall to address the seizing-up of financial markets remains appropriate.'


Shares were down 80 points on the key Dow Jones Industrial Average before recovering to post a slight gain in afternoon trading. Mr Greenspan repeated his concerns about soaring US share prices first voiced at the end of 1996.