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Fed chief lauds productivity
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April 7, 2000: 2:43 p.m. ET
Greenspan says gains fueled by technology will keep accelerating
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NEW YORK (CNNfn) - Productivity, one of the driving forces behind the record U.S. economic expansion, should continue to accelerate as further developments in technology help companies and workers produce goods and services faster and cheaper, Federal Reserve Chairman Alan Greenspan said Friday.
 In his second public address of the week, Greenspan said that the billions of dollars invested in information technology in recent years have finally begun to pay off, boosting productivity and keeping costs down for companies. And that investment has begun to affect the economy in a positive way, allowing for a higher level of sustained growth without necessarily triggering inflation.
"Indications that the extent of the application of existing technology is still far from complete, plus potential benefits derived from continuing synergies, support a distinct possibility that total productivity growth rates will remain high or even increase further," Greenspan told the National Technology Forum in St. Louis via videoconference.
"Despite the fact that there exists uncertainty about the pace of productivity growth in the years to come, knowledge is essentially irreversible, so much -- if not most -- of the recent gains in productivity appear permanent," the Fed chairman said. (550KB WAV) 550KB AIFF)
No stock talk
The Fed chief made no reference to the U.S. stock markets as he did Wednesday, a day after the Nasdaq's largest plunge and biggest recovery ever in a single day. He also made no mention about the future direction of interest rates, other than to suggest that the Fed's five rate increases since last June have been necessary to ensure the robust U.S. economy doesn't begin to fuel higher prices for consumer goods.
 "The Federal Reserve has responded to the balance of market forces by gradually raising the federal funds rate over the past year," Greenspan said. "Certainly, to have done otherwise -- to have held the federal funds rate at last year's level even as credit demands and market interest rates rose -- would have required an inappropriately inflationary expansion of liquidity."
His remarks followed on the heels of a Labor Department report showing employment growth registered its biggest monthly jump in more than five years, even as one-time factors such as the government census and a five-week month lifted the numbers beyond what they normally would have been.
While Greenspan and many economists have argued that a general shortage of skilled workers and the lowest unemployment rate in a generation is threatening to fuel inflation in the form of wage gains, the Fed Chief suggested Friday that fear of losing their jobs to technology has kept workers from demanding higher wages.
Replaced by a computer?
"Despite the tightest labor markets in a generation, more workers report in a prominent survey that they are fearful of losing their jobs than similar surveys found in 1991 at the bottom of the last recession," Greenspan said. "The marked move of capital from failing to technologies to those at the cutting edge has quickened the pace at which job skills become obsolete."
 As for the economy itself, Greenspan reiterated his and the Fed's commitment to ensuring the economy remains strong, but not strong enough to ignite inflation pressures -- something that could potentially bring the current economic expansion to an end.
"We need to be careful to keep inflationary pressures contained: The evidence that inflation inhibits economic growth and job creation is too credible to ignore," he said. "Consequently, maintaining an environment of low and stable inflation provides the greatest opportunity for the dramatic increases in structural productivity to show through fully into higher standards of living."
Fed officials next meet May 16 in Washington to discuss the pace of the economy and the direction of short-term interest rates. Most analysts on Wall Street expect the Fed to raise its benchmark fed funds rate by another quarter point to 6.25 percent. 
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U.S. Federal Reserve
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