Congress seeks Greenspan's final opinions
(AP)
Updated: 2005-11-03 21:31

Congress has three months left to get Federal Reserve Chairman Alan Greenspan's views, not only on economic policy but also on just about anything lawmakers want him to weigh in on.

Those other topics in the past have ranged from education and energy policy to trade and technology. After 18-plus years in office, Greenspan has not been shy about wading into such areas or politically charged issues such as taxes and Social Security.

Greenspan's endorsement of President Bush's tax cuts in 2001 still irks Democrats. That turned out be the last year the government produced a budget surplus. Since then, it has been bleeding red ink.

The Fed chief was appearing before Congress' Joint Economic Committee on Thursday. The assigned topic was the outlook for the economy.

Greenspan's appearance comes two days after he and his Fed colleagues decided to boost the federal funds rate by one-quarter of percentage point, to 4 percent, to fend off inflation. That was the 12th increase of that size since the Fed began to tighten credit in June 2004.

Fed policy-makers' sense is that the economy remained sturdy despite the double blow of hurricanes Katrina and Rita. But they are concerned that the toll of high energy prices could aggravate inflation.

"The cumulative rise in energy and other costs have the potential to add to inflation pressures," the Fed said in a statement on Tuesday.

In response to the Fed's rate decision, commercial banks lifted their prime lending rates to 7 percent. These rates are used to determine many short-term consumer loans, including certain credit cards and popular home equity lines of credit.

The Fed's action pushed the funds rate, which is the interest banks charge each other on overnight loans, and the prime rate to their highest level in more than four years.

Many economists are predicting the Fed will bump up rates at its next session, on Dec. 13, as well as on Jan. 31, which will be Greenspan's last meeting. Some analysts also are calling for a rate increase on March 28, which would be the first presided over by Ben Bernanke, President Bush's choice to replace Greenspan.

A former Fed governor, Bernanke is chairman of the White House's Council of Economic Advisers. His nomination is subject to Senate approval, which is expected.

Bernanke has said that his first priority will be to maintain continuity with Greenspan's policies. Fed watchers say that means inflation-fighting will keep playing a prominent role.

Even with the bruising punches of hurricanes Katrina, the most costly natural disaster in U.S. history, and Rita, the economy grew at a solid 3.8 percent pace in the third quarter.

Damage from the storms, however, was evident in the nation's payrolls. They shrank by 35,000 in September, the first nationwide decline in two years. But many analysts are predicting an October rebound of around 100,000 jobs. The government releases October's employment report on Friday.

The storms only "temporarily depressed" employment and production, the Fed said Tuesday, sounding a somewhat optimistic note about the economy's direction.