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Greenspan caters to inflation hawks Original Source Link: (May no longer be active)
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Bonds News
Greenspan jobless comments aimed at inflation hawks
Mon Apr 26, 2004 06:26 PM ET
By Andrea Hopkins
WASHINGTON, April 26 (Reuters) - Federal Reserve Chairman Alan Greenspan pulled out an obscure number last week to show the U.S. Congress just how many Americans were exhausting their jobless benefits every week.
But his real audience was not lawmakers -- it was inflation hawks on Wall Street, analysts said on Monday. Greenspan was trying to tell over-eager traders the labor market was still weak enough to prevent an imminent interest rate hike.
"I think this was an attempt to basically stave off rising expectations that the Fed was going to raise rates," said Anthony Chan, chief economist at Banc One Investment Advisors. "Seasoned Fed watchers should know that he's doing this to send a message."
With the economy gaining momentum, the Fed has made it clear it is getting ready to raise the official federal funds rate from a 1958 low of 1 percent, and bond yields have already staged an anticipatory rise.
But when the Fed will move remains far from certain -- some say June, other believe not until 2005 -- and Chan said Greenspan was trying to pull the markets back from a belief that sooner is more likely than later.
"What he's really trying to say here is look, our labor market is still in a fragile state ... This is not a non-recessionary environment, there is no rush," Chan said.
Greenspan caught attention by citing an obscure statistic that showed 85,000 jobless Americans a week exhausted their unemployment benefits in March -- more than double the 35,000 per week in September 2000.
THOSE WERE THE DAYS
More than 3 million Americans were on the unemployment rolls in March, nearly double the 1.7 million in September 2000. In the same period, the unemployment rate has risen to 5.7 percent from 4.0 percent.
Greenspan's explicit comparison of current conditions with much healthier days before the economy fell into a recession, coupled with his comment that March's exhaustion number was "exceptionally high" sent many scrambling to dig up the data.
While there is no official weekly count of the unemployed who run through their benefits, a Labor Department analyst said Greenspan likely took monthly data from Labor's Unemployment Insurance report and calculated a weekly number.
The report is not even formally released by the department. It instead simply updates a dozen figures each month on its Web site, based on data sent from each state.
Wachovia Securities chief economist John Silvia said Greenspan -- an avowed data geek -- likely wanted to go beyond headline numbers like the unemployment rate or payrolls count to emphasize the weakness of the labor market.
"He did it basically to declare a lot of slack in the U.S. labor market. I think that's the real key," Silvia said. "His argument is that these people dropping off the rolls are out there somewhere and that there is a lot less pressure on the labor market than otherwise."
Senators questioning the Fed chief instead thought he was saying he thought unemployment insurance should be extended one more time to provide some relief to Americans who had exhausted their benefits -- and Greenspan obligingly said another short-term extension made sense.
The federal extended-benefits program, which gives 13 more weeks of aid once the 26 weeks provided by the states runs out, expired in December.
Efforts to renew the extension have been blocked in Congress by lawmakers who argue the recovering economy has begun to create jobs, making more benefits unnecessary.
© Reuters 2004. All Rights Reserved.
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