WASHINGTON -- Federal Reserve Chairman Alan Greenspan called the economy's strong growth and low inflation truly phenomenal Thursday, but he also expressed worries about "imbalances in our expansion" -- and that sent jitters through Wall Street.
Investors and analysts saw Mr. Greenspan's comments as a warning signal that even though America is currently enjoying the best combination of rapid growth, low unemployment and low inflation in three decades, the central bank is worried.
"Of most concern is how long this remarkable period of prosperity can be extended," Mr. Greenspan told an audience at an international conference on banking in Chicago.
"There are imbalances in our expansion that, unless redressed, will bring this long run of strong growth and low inflation to a close."
As he has in the past, Mr. Greenspan expressed concerns that the high-flying stock market could suddenly come back to earth, causing a reversal of the wealth effect that has powered consumer spending. Mr. Greenspan also said there was a "limit to how long and how far" America's soaring trade deficits can grow without bringing international pressures to bear on the U.S. economy.
But Mr. Greenspan reserved his greatest worries for tight labor markets, which have driven unemployment down to a 29-year-low of 4.2 percent, far below the level of 6 percent unemployment that economists used to believe was the threshold point at which tight labor markets would begin to trigger inflationary pressures.
That hasn't occurred in this expansion and Mr. Greenspan said Thursday he believed the reason for that was a burst of productivity in recent years stemming from heavy investment by businesses in computers and other high-tech gadgets of the information age.
Mr. Greenspan noted that over the past 12 months productivity -- output per hour of work -- has been rising at nearly a 3 percent annual rate, three times the anemic 1 percent rate of the early 1990s.