Worker productivity is the key factor that determines how fast American
living standards can rise, and how much more employers can afford to pay
their workers without triggering inflation.
The key measure of future prosperity came in at 2.4 percent for the first
three months of this year, and at the same time the government reported unit
labor costs rising for the same period. Economic analysts say rising wage
pressures and the slowdown in productivity were more dramatic than
anticipated, and point toward a stiffer tightening of credit by the Federal
Reserve.
David Horner, Senior Financial Strategist, Merrill
Lynch, “The data
we have seen recently, over the last two weeks, increasingly confirms that
the Fed will take a more aggressive stance toward tightening rates. All the
data we’ve seen in the last two weeks confirms that. Sometimes the data is
mixed, but this data has not been mixed.”
Alan Greenspan, Chairman of the Federal Reserve speaking to a banking
conference in Chicago, didn’t make any direct comments on current economic
growth, the potential threat of inflation, or give any hint what the Fed
will do when it meets May 16th.
But he cautioned the lending institutions to carefully monitor their
business practices and to be prepared for changes in the current economic
conditions.
Alan Greenspan, Chairman, Federal Reserve, “Regardless of the
resources, an effort a bank puts into forecasting its risk profile, it ought
not make crucial capital allocation decisions, based on those forecasts
until their accuracy has been appraised.”
Greenspan also told the bankers not take the strong economy for granted and
to not to make judgements on advancing credit and loans, based on the belief
that the current period of growth will continue forever.
