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In his latest

speech on monetary policy this morning,

Fed Chairman

Alan Greenspan dropped no clear hints. Of course, coming from the man who is known to speak with less than clear turns of phrase, that's no surprise.

But his tone was market-friendly, as he embraced the notion that productivity is enhancing the economy's growth potential in a lasting way. And he implied that high oil prices are likelier to slow economic growth by curtailing consumer spending than to ignite inflation more broadly. Oil started the year near $25 a barrel and lately has been trading close to $35.

Among the key questions facing monetary policymakers is whether new technologies are improving productivity in a temporary way or in a lasting way. Higher rates of productivity growth enable the economy to grow faster without driving up the inflation rate. That makes lower interest rates possible.

In the speech, Greenspan distanced himself from those who doubt that recent productivity gains have improved the economy's growth potential in a lasting way. "Some who question the economic implications of the spread of innovation and the step-up in productivity growth hypothesize that the gains are largely confined to the so-called new economy, with little effect on efficiency in the old economy," he said. "But this notion fails to capture the dynamics of the marketplace."

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There is, with few exceptions, little of a truly old economy left," Greenspan said. "Virtually every part of our economic structure is, to a greater or lesser extent, affected by the newer innovations."

Changes in the economy have also changed the economic and monetary policy implications of rising energy prices, Greenspan suggested. The implication here is that the sharp rise in oil prices that has occurred this year is less likely to trigger interest-rate hikes to head off a broader increase in inflation than to lead to interest-rate cuts to prevent growth from slowing too much.

The Fed "will need to consider how changes in technologies and world markets may have altered the response of our economies to oil-price shocks and, thus, how best to respond to them," he said.

So far, the effect of higher oil prices on inflation expectations "has been virtually nil," Greenspan said. Of course, growth hasn't been deeply affected yet either, he said. But the effect on growth has been more significant than the effect on inflation, he pointed out.


Despite some slowing that likely has been related in part to the bit from the so-called 'oil tax' on household items, the growth of consumer spending has remained firm," Greenspan said. "But policymakers will need to be on the alert for oil-driven, indeed energy-driven, risks to our expansion."

Consumer spending slowed to a 3.1% pace during the second quarter from 7.6% during the first, but it is forecast to have rebounded to between 4% and 5% in the third quarter.