Alan Greenspan: The Federal Reserve Chairman

Job growth has remained low despite indications that the economy is recovering from lackluster performance because productivity has been high inside workplace. As soon as productivity increases, employers are in a position to use a smaller amount workers to accomplish the exact same tasks that formerly required far more employees. This approaches that employers do not have to add workers and this keeps work growth low. Productivity elevated at a rate of more than five percent in 2003, and Greenspan indicated that it's unlikely that this sort of high gains will continue. As soon as productivity begins to slow, employers will need to hire new employees and this, in turn, will spur the economy (Ip, 2004).

Greenspan indicated that "patience" was the order of the day to your Fed, and that there's no need to rush to improve interest rates, which currently stand at a single percent. However, Greenspan also indicated that the 1 percent rates would not stand forever and that eventually, rates would be driven up. Typically, rates are kept low to be able to stimulate the economy sice low rates encourage borrowing which can be applied to invest in new equipment or otherwise improve purchases. As the economy moves forward, the Fed seeks to maintain rates at a level that encourages growth, but which doesn't encourage the economy to "overheat," resulting in high levels of inflation.

Greenspan's remarks to Congress are carefully watched and analyzed as investors and others seek to discern what direction the Fed will consume with regard to interest rates. It looks that Greenspan reassured Congress and investors that interest rates will remain low for your near-term, but he did give warning that 1 percent interest rates aren't sustainable over lengthy periods of time. He anticipates that unemployment will decrease as productivity gains slow, and that job growth will stimulate the economy. Once all of these events come to pass, the Fed may possibly take in the bold step of increasing interest rates, and numerous investors have already taken positions in anticipation of this.

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