Sun, Sep 16, 2007 - Page 11 News List

US Fed may need to double interest rate: Greenspan

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"There is little doubt, however, that the burst of US non-farm productivity growth from 1995 to 2002 has given way to a lessened pace of growth," Greenspan wrote.

Productivity gains averaged a 1.7 percent annual rate in the first six months of this year, down from 3.6 percent during the high-technology boom of 1999.

Greenspan forecast a long-term average of 2 percent for increases in output per hour.

Greenspan also forecast an end to the anti-inflation pressures from the inclusion of China and other emerging economies into the global trading system.

US wage earners have suffered and consumers have benefited from a one-time shift of millions of workers into the world labor force. The former chairman once defined globalization as the elimination of borders in the production of goods and services.

"The continuing acceleration of the flow of workers to competitive markets during the past decade has been a potent disinflationary force," Greenspan wrote. "That acceleration has held down inflation virtually uniformly across the globe."

That force may be coming to an end.

"The rate of flow of workers to competitive labor markets will eventually slow and as a result, disinflationary pressures should start to lift," Greenspan wrote. "China's wage growth should mount, as should its rate of inflation. The first signs are likely to be a rise of export prices, best measured by the prices of Chinese goods imported into the United States."

US Labor Department figures showed yesterday that costs of imported Chinese products rose for a fourth straight month last month.

The third source of pressure on inflation will come from US government budget deficits.

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