Federal Reserve watchers say Chairman Alan Greenspan could set a hawkish tone for rate hikes in the next six months at his biannual Humphrey-Hawkins testimony this Wednesday and Thursday. The testimony, which is Greenspan's semiannual report to Congress on monetary policy, comes at what many observers consider is a crossroads in the interest-rate cycle with the Federal Funds rate approaching a neutral level.
In addition, this month's Federal Open Market Committee statement was remarkably free of new economic commentary (BW, 2/7), which is adding to the significance of the Humphrey-Hawkins testimony. "There's little to gain by putting such commentary in the statement, when Greenspan can expand and discuss things in his Humphrey-Hawkins testimony," commented Drew Matus, senior economist at Lehman Brothers.
"Greenspan could make the case overall conditions are more stimulative...his testimony [could] have a more hawkish tilt," predicted James O'Sullivan, U.S. economist at UBS. He pointed to factors such as low bond yields, tight credit spreads, a weak dollar and an easing in bank lending restrictions as indicative of a stimulative environment.
Andrew Williams, Fed spokesman, declined comment.
