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INFLATION MAY COME SOON, GREENSPAN SAYS

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The economy's robust growth hasn't yet translated into increased consumer-price inflation, but it may soon, Federal Reserve Chairman Alan Greenspan warned Wednesday.

He noted that consumer-price inflation, at a 2.6 percent annual rate during the first 10 months of 1994, hasn't changed appreciably from last year but said price pressures were clearly evident earlier in the production process.The prices of raw commodities "have been rising rapidly for nearly two years" and lately "prices of intermediate supplies have accelerated," he told the Joint Economic Committee in his first congressional testimony on monetary policy since July.

"With demand for their output strong, finished goods producers may soon attempt to pass on their higher costs," he said.

Greenspan's inflation warning, coupled with his assessment that the economy has remained buoyant despite six interest rate increases this year, was sure to be seen as a sign that more interest rate increases are in the offing, unless the economic strains he noted ease.

"The hallmark of a successful monetary policy will be an inflation rate that does not rise," he declared.

Among the signs of strain, he noted a slowdown in delivery times of manufactured goods, stock and bond prices that "appear to suggest that inflation will move higher," and substantially higher operating rates at factories.

Greenspan ticked through nearly every sector of the economy and found each to be either strong or improving.

"The impressive performance of the American economy continues," he said.

The labor market has improved, Americans' incomes are growing solidly and their confidence is buoyant, he said. Housing construction remained robust in the July-September quarter, helped by an easing in lending standards. Sales of durable goods to consumers - items expected to last three or more years - "has been quite robust" and auto purchases "have remained buoyant, he said.

Meanwhile, there's been "an extraordinary rise" in corporate profits and above-average growth in business investment spending is likely to continue, he said.

Exports are increasing, helped by economic recovery overseas, and even commercial construction, including the hard-hit office building market, has begun to recover.

"Adding all sectors together, growth in gross domestic product this year is running somewhat stronger than we had anticipated earlier in the year," he said.

Greenspan delivered his testimony after lawmakers urged him to hold off on further rate increases, at least for a while.

"The Federal Reserve should be very cautious about making any further increases in interest rates before seeing the impact of its recent strong actions," said Rep. Kweisi Mfume, D-Md., the chairman of the joint committee.

Rep. Jim Saxton, R-N.J., agreed, saying, "An increase in interest rates and restraint now or in the near future seem to pose some risk. A growing economy does not cause inflation in my view."

Earlier this week, House Democratic leader Richard Gephardt of Missouri argued in a letter to Greenspan that U.S. manufacturers have been keeping their prices down to compete against international rivals.

Greenspan said there was "a significant amount of truth" in that argument but characterized the effect of global competition on inflation as a development that was "evolutionary, working slowly and incrementally over time."

He warned that if the central bank ignored past experience showing that inflation results from a tightening economy, "we would be taking unacceptable risks of higher inflation, economic and financial instability, and ultimately subpar economic performance."

Waiting to raise rates "until inflation picks up risks a boom-and-bust economic cycle inimical to business and household planning, to saving and investment and to the longer-term growth of the U.S. economy," he said.

Greenspan steadfastly refused to say outright whether the Fed would increase rates soon but he noted that financial markets anticipate rising rates next year and he noted that central-bank policy-makers are scheduled to reach a conclusion at their next meeting on Dec. 20.

"I do not at this stage know what that conclusion would be," he said.

The Fed last boosted benchmark rates three weeks ago, a three-quarter-point rise that was the largest in 13 years.

Since then, the Labor Department has reported an unexpected drop in the unemployment rate, to a four-year low of 5.6 percent in November. That has reignited speculation that the next rate increase isn't far off.

The Fed began pushing rates up in February. Cumulatively, it has raised the federal funds rate - the rate charged among banks on overnight loans - from 3 percent to 5.5 percent.