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2000 In Review: U.S. Economic Expansion Rolls On But Future In Doubt

The U.S. economy has been the engine of world growth for the past several years. But there are signs that the phenomenal growth rates of recent years may be slowing. RFE/RL correspondent Andrew F. Tully reports from Washington that economists are now pondering whether 2001 will bring a soft landing to the U.S. economy or whether Americans, and by extension much of the rest of the world that is dependent on U.S. growth, may be in for tougher times ahead.

Washington, 15 December 2000 (RFE/RL) - The U.S. economy, through November, recorded 11 more months of economic growth in 2000, continuing an unprecedented string of 117 consecutive months -- or nearly 10 years -- of steady expansion.

Economists say historic increases in labor productivity, low inflation and inflows of foreign capital combined to produce another year of rising real incomes.

But as the year draws to a close, there are increasing signs that growth is slowing.

Economic output has fallen to an annual rate of around 3 percent from 5 percent earlier in the year. Surveys indicate U.S. consumers are less confident than they were a year ago. And the value of shares in many companies, particularly high-technology companies traded on the Nasdaq stock exchange, has plummeted.

A fall in stock prices does not necessarily indicate an economic slowdown, but it does signal that investors believe companies will have a harder time sustaining high growth rates in the future.

The question now on economists' minds is whether the U.S. is heading for a "soft landing" -- in other words a slower but still healthy rate of growth -- or a harder landing, with little or no growth.

Many say the answer to this question lies with Alan Greenspan, the chairman of the U.S. Federal Reserve Board, and the wisdom of his policy of pre-emptively raising interest rates to ward off any anticipated inflation.

In the past 18 months, the Federal Reserve -- the U.S. central bank -- under Greenspan has approved six interest rate rises to increase the cost money and dampen any inflation brought on by the high growth. The effect of the increases has been to slow growth -- and ease inflationary pressures -- by making it more expensive to borrow money.

Earlier this month, the Fed chairman indicated he believes his policies are working. He told a banking conference in New York he was relieved to see that the economy had slowed to what he called a "sustainable" level. His comments were backed up by government reports indicating a slowing of growth.

Greenspan did not say he was prepared again to start lowering interest rates. But he indicated that may now be an option:

"In an economy that already has lost some momentum, one must remain alert to the possibility that greater caution and weakening asset values in financial markets could signal or precipitate an excessive softening in household and business spending."

Inflation is under control, but some economists feel that Greenspan's policy of tighter monetary policy may have gone too far in restricting growth.

Angela Antonelli is an economist with the Heritage Foundation, a Washington think tank. She says Greenspan's monetary policy has had a profound impact on the American economy -- but is emphatic about her belief that his intervention demonstrates what she calls "a fundamental misunderstanding" of what really causes inflation.

Antonelli says in her opinion factors like low unemployment do not necessarily lead to inflation if they are accompanied by high productivity and strong competition. She notes these elements are present in the U.S. economy

She says she has seen little evidence of inflation in spite of a steep rise in the price of energy over the past nine months.

"We haven't seen significant pressures to boost prices and to drive inflation. I mean, more than anything, high productivity and intense competition have helped to keep inflation low."

Antonelli says that she thinks the Federal Reserve should move to control monetary policy only in emergencies, and not to reflect its chairman's personal economic policy.

"The federal reserve is an independent central bank in the United States, but it shouldn't have this kind of activist policy that's being driven by its current Federal Reserve chairman."

William Niskanen, who served as an economic adviser to President Ronald Reagan during the 1980s, says Greenspan's policies have had an effect on the economy, but he says that technology -- and not changes in interested rates -- are fueling the economic boom.

"I don't downplay Alan Greenspan's contribution, but it's -- the growth and the long boom are basically a consequence of the technology boom."

Niskanen says the recent slowing of the American economy creates the possibility of a recession in 2001.

"I think it is possible, but I still don't expect a recession next year. But I think next year's real growth will be lower than what has been the average for some time."

But Niskanen says U.S. president-elect George W. Bush -- who takes office in January -- should not be concerned. He says that even if there is an economic downturn, presidents have ways of minimizing their impact and shortening their duration.