Fed Chief to Biz: OK To Spend Again

Jul 22, 2004

By George Anderson

Federal Reserve Chairman Alan Greenspan understands why businesses may be reluctant to start spending on new systems or hiring permanent employees. He also understands that, if businesses get over their cautious approach, it could mean big things for the U.S. economy in the future.

Speaking before the House Financial Services Committee, Mr. Greenspan said, “To the extent these (business fears) are capable of being assuaged, what it probably will be doing is rather than creating a large surge in economic activity, is to gradually stretch it out, if indeed a degree of confidence gradually returns. That would be one the reasons why a gradual expansion which we now seem to be experiencing does bode well for next year.’

In answer to questioning, the Fed Chief said the Bush Administration’s tax cuts have been helpful in keeping the economy moving but that future efforts will require more emphasis on fiscal policy.

Moderator’s Comment: Are consumer goods manufacturers and retailers being unduly cautious about making investments in their businesses? What is your
reaction to the Fed Chairman’s apparent call for business to start spending again?

It always takes a great deal of reading between the lines when trying to figure out exactly what Mr. Greenspan is saying. So, to be sure, this is an inexact

As we read into Mr. Greenspan’s comments, this is what we conclude: Reducing deficits in the future, which may or may not require tax increases but will
certainly require government to curtail its spending, will shift the need for economic stimulus from the government to private industry. Mr. Greenspan wants businesses to pick
up their spending.

George Anderson – Moderator

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