Feb. 11 (Bloomberg) -- Federal Reserve Chairman Alan Greenspan is likely to offer Congress today an optimistic forecast for economic growth and face questions on the rising U.S. fiscal deficit and slow pace of job creation. ``There aren't enough good jobs,'' Representative Bradley Sherman, a California Democrat and member of the House Financial Services Committee, told Bloomberg News in an interview. ``There is a labor surplus in this country and that is reflected in declining compensation.'' Greenspan, who is to present semi-annual economic testimony to the committee at 11 a.m., will likely forecast strong growth, yet only gradual improvement in labor markets. He will probably say the nation's low inflation rate will allow the Fed to be ``patient'' in raising interest rates, a term it introduced in its Jan. 28 policy statement.
Jobs have become a top issue for Republicans and Democrats alike this election year as hiring has lagged the economy, which expanded at a 6.1 percent annual rate in the second half of last year, the fastest in almost two decades. During that period the economy created only 184,000 jobs. Some 1 million have been lost since the recession ended in November 2001, based on a Labor Department survey of businesses.
Caught in the Middle
``This economy is getting better -- it's showing growth,'' President George W. Bush said Monday in Springfield, Missouri, after his economic team forecast hiring will pick up and the economy will create 2.6 million new jobs this year. ``This president has the worst job record of the last 11 presidents combined,'' countered Democratic presidential aspirant John Kerry, also a Massachusetts senator. Greenspan likely will find himself caught in the middle. ``This is, after all, an election year,'' said Ed McKelvey, senior economist at Goldman, Sachs & Co. in New York. ``Members of Congress will take the opportunity to grill Chairman Greenspan'' on the weak job market and falling inflation rate. The Fed chief is scheduled to repeat today's testimony before the Senate Banking Committee at 10 a.m. tomorrow. ``Members of the Senate are going to question Chairman Greenspan about the reason for the slow pace of job creation,'' said Senator John Sununu, a New Hampshire Republican. ``I don't see any need to raise interest rates'' now, he said. The Fed has kept its benchmark overnight lending rate at an almost 46-year low of 1 percent since June, and Greenspan has said that unusually high increases in productivity, or worker output per hour, are responsible for the low levels of new jobs.
Productivity
``Business people have found that even though their orders are increasing measurably, they've not needed to bring on more people,'' Greenspan said on Jan. 13. Productivity grew at a 2.7 percent annual rate in the fourth quarter and rose 4.2 percent for all of last year and 4.9 percent in 2002. The two-year average was the largest since 1950-1951 and above the 1976-1995 average gain of 1.4 percent per year.
Greenspan will also present the Fed's forecasts for growth, inflation, and employment. Gross domestic product will increase 4.6 percent in 2004, according to the latest Blue Chip Economic Indicators survey of economists released yesterday. It would be the fastest growth in two decades. A prediction of strong growth coupled with any lowering in the Fed's forecast of last July for unemployment of 5.5 percent to 6 percent this year ``could stir renewed speculation on tightening in 2004'' that would push market interest rates higher, said Goldman's McKelvey.
Interest-Rate Outlook
At 5 p.m. yesterday in New York, the price of the benchmark 4 1/4 percent Treasury note maturing in November 2013 fell almost 1/2, or $5 per $1,000 face amount, to 101 1/16, on speculation of robust growth and employment forecasts from the Fed. Its yield rose 6 basis points to 4.11 percent. A basis point is 0.01 percentage point. Some analysts said Greenspan will suggest rate increases aren't imminent. ``With inflation low, ample slack in the economy, productivity growth high and job growth still tepid, any Fed tightening is still far off,'' said Morgan Stanley chief U.S. economist Richard Berner in a report. Traders are betting the central bank will raise rates after September, based on interest-rate futures. The Eurodollar contract for September, a gauge of three-month lending rates, closed yesterday at a yield of 1.61 percent. Eurodollar futures have averaged 24 basis points more than the Fed's rate target during the past decade. Bush's $2.4 trillion budget and the resulting budget deficits -- $521 billion this fiscal year -- probably will be another issue. Greenspan may blame both sides in repeating previous criticism about a lack of fiscal discipline.
`Fist on the Table'
``I imagine the chairman will speak about the real deficit problem, the longer-term deficit that flows out of Medicare and Social Security, creating budgetary pressures that dwarf the short- term fiscal deficits,'' U.S. Treasury Secretary John Snow told reporters while traveling in Tampa yesterday. Greenspan hasn't been shy in commenting on fiscal issues. In a 2001 Capitol Hill appearance he endorsed tax cuts, a move widely credited with giving momentum to Bush's tax-reduction package. Since that time, the Fed chairman has used congressional testimony to criticize deficits and, more generally, a lack of ``discipline'' in the budget process. ``He will be fist-on-the-table on the fiscal policy side,'' said Paul McCulley, managing director at Pacific Investment Management Co. ``If markets are surprised by anything, they will be surprised by just how hawkish he is on fiscal policy.'' //www.bloomberg.com