Interview: Chief economist at the international monetary fund
>> welcome back. let’s head to jackson hole, wyoming. our mike mckee standing by with chief economist for the international monetary fund.
>> thank you very much. in his comments today, fed chairman alan greenspan warned that the housing boom and the current account deficit in the u.s. were economic imbalances that threatened growth here, and by extension, in the rest of the world. someone who certainly knows about the current account imbalance and difficulties it could pose for the u.s. in the world is the chief economist at the international monetary fund. thank you very much for joining us. what did you make of the chairman’s comments? is he very worried about these things right now or is it a standard warning?
>> i don’t think it’s a standard warning, but i do think that nobody knows whether these are risks that will materialize in a year or five years. i think he is offering caution that we should be worried about these things and we should take steps, particularly for the current account deficit. it could go on for a long time. we should start taking steps to narrow it because it is widening beyond the region that any large country has been in in recent times.
>> what would be the policy prescription?
>> one part would be narrowing the fiscal deficit. that will be important in the current account deficit. another part will be the steady, measured pace of increase of interest rates because that could eventually affect housing prices and affect savings in the united states, which will also contribute to the narrowing of the current account deficit. other countries have to play a part. asia has to import more and more flexibility needs in exchange rates will help in this. europe and japan have to grow faster and access u.s. imports. these are a bunch of things all countries have to come together to do. i think he is emphasizing this is something we should start paying more attention to
>> he also spoke about investors perhaps being a little too sanguine about the state of the economy in the u.s. and the world. interest rates are not particularly high anywhere. is this a global phenomenon now?
>> i think there is a certain worry that the world is awash in liquidity, and perhaps there is too little attention being paid to risks. he did mention the word low-risk premium. low-risk premium could end badly. i suspect that this is just, this is not a new warning. he has been talking about froth in the housing market . i think he is urging investors to pay caution at this point. he is saying prices are high enough that there’s not thatch margin for error.
>> one of the big risks facing the world right now, the rising price of oil. we have a new hurricane that may possibly threaten the oil platforms in the gulf where it is almost $70 oil now what happens then?
>> thus far we have managed the price rises. at some point, it is going to start impacting a number of issues like inflation and interest rates, long interest rates. it is a concern. i think it is a concern not just for the united states. most industrial companies have weathered it so far, but it’s becoming increasing concern for developing countries where the price of oil has much about bigger effects on their economy.
>> it is a question of whether and when people will react to it. do you think we get to a psychological tippingpoint first before we actually see the effects on commit?
>> that is well possible. thus far as you said, people have been absorbing the oil shock. hasn’t affected, for example, the expectations of inflation seriously. at some point, however, people are going to pay much more attention as it starts hurting them, and as the expectations start changing, at that point we could get what you call a psychological tippingpoint. the higher it goes, the sooner it will come.
>> your responsibility is global economics. how important is the federal reserve to economies elsewhere?
>> well, it’s the central player in the world economy. as a result, its action matter everywhere. both inside the u.s. economy and a lot of countries take their cue, a lot of markets take their cue from what the fed does. obviously markets have become much deeper over the last 20 years. so it matters less, but it still matters a lot.
>> how has alan greenspan been as a steward of this i
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headquarters in new york city, i’m lori rothman. this is “ after the bell.” let’s get you right to the numbers. the dow jones industrial average closes down over .5%, 10,397. s&p off over .5% and the nasdaq down .6%. we start with what’s been a volatile day for oil prices as investors focus on the changing path of hurricane katrina. nymex crude oil futures dropped 2%, ending the session above $66 a barrel after reaching nearly $68 in today’s trading session. the storm is now heading for the florida panhandle and workers are avackyathe oil platforms in the gulf of mexico. bloomberg’s su keenan has more.
>> katrina is now a category two hurricane on its way to being upgraded to category three. winds packing up to 100 miles per hour at this point. the key question for investors, will the storm head directly for the gulf of mexico where 30% of u.s. oil is produced? katrina already swept across southern florida, killing four people and leaving thousands without power. as it heads toward the gulf, it now looks likely to miss the bulk of the actual rigs. those are located off the coast of louisiana and texas. even so, a number of company are evacuating nonessential workers as a precaution. those include ritch dutch shell, b.p. and transocean. fimat’s mike fitzpatrick says the hurricane can still change directions and pick up strength.
>> certainly it seems as though we’ve been on an unbroken track toward the $82 high that was inflation-adjusted high scored right after the iranian crisis in 1980. even though it’s not smorted by market fundamentals, it seems they want to keep pushing the prices there. until there is overwhelming fundamental evidence of the economy weakening and eating into energy demand, this could continue unabated.
>> they thinks we are going high frer here. last year nymex oil futures surged 22% in the month after hurricane ivan hit the gulf of mexico. concern that future storms could do similar damage will likely drive prices higher next week that’s the result of our latest bloomberg survey. you are looking at it. 51% of analysts and traders predict higher prices for next week. only 29% think prices will back off current levels. as you can see, the remaining 20% predict little change. hurricane katrina is the 11th storm of the year. lore yirks hurricane season is far from over.
>> thank you for that. now for the latest on the storm’s direction we turn to meteorologist buzz lopez of the weather service international.
>> good afternoon, lori. while we are talking about a very strong storm here, it’s a strong category two storm. katrina has winds sustained about 100 miles per hour we saw winds gusting to 74 miles per hour in key west. as we zoom on the satellite picture, you can see it is a well defined storm in fact, every once in a while you good et to see a hint of that eye as it continues to pass just to the west-northwest of key west. in fact, at the present time it is about 65 to 70 miles west-northwest of key west itself at vermont tip here of the keys. what we are going to see is some good winds along the southwestern shores of the state of florida. as the storm system continues to move out onto the open waters, it’s going toen continues guy. we are looking for winds probably about 72 hours or so by monday morning to be about 125 to 130 miles per hour. that would be about a very strong category three, perhaps even just under category four status. on the radar picture, very intense rainfall. lots of yellows and reds indicating rain that’s come down at some good rates. we’ve been talking about rainfall about eight inches officially at key west. in some areas picking up considerably more than that. there is where the storm is right now. it’s going to move out over those warmer waters again. looks like by monday morning we could be talking about laundfall number two. that would occur on the northern portions of the gulf of mexico. there the corner on this screen you can see the current stats, winds about 100 miles per hour, moving very lowly west-northwest at eight miles per hour. as we head through the weekend, it is going to take that turn up to the north. some of the latest model indications are now stating this system could maybe make a little bit more of a westerly jog. that means interest from around the delta of the mississippi, around new orleans out towards panama city. noo ed to watch this closely. take those preparations right now. a little bit further to the east, you are probably talking about less of an impact. nonetheless, you want to keep your guard up.
>> buzz lopez of w.s.i. weather center. even though the dow closed lower, markets made some big moves in the afternoon session. for more, here is a report from deborah kostroun at the big board.
>> all the major averages closing out the session lower. however what we did see, the dow jones industrial average bouncing around and actually bouncing off those lows as oil retreated. it closed down $1.36 a barrel, $66.13. that as hurricane katrina likely to miss the oil platforms in the gulf of mexico. that sent oil moving around and sent stocks moving, as well. consumer confidence coming out weaker than expected. that sent retail stocks lower. also we saw the financials lower and that was really tied to alan greenspan’s comments that the increase in the value of assets such as homes and stocks can readily disappear and what he said posing a risk for commit. those comments having an impact. you take a look at the laggards on the s&p 500, oil impacting the energy. bank stocks being impacted by greenspan. oil services within the energy industry, those were some of the worst performers along with the integrated oil. bank stocks lagging on the day. bloomberg home building index was down a little more than 1% on date, 1.5%. the bloomberg home bidding index for the month down 13% in fact, a little bit surprising we even saw the home builders lower in thursday’s session, even though toll brothers said profit doubled in their third quarter as p sales surged and prices of homes surged. home builders not able to homed a rally at this point. retail stocks getting hit by that consumer confidence report. those were some big drags on the market . for the week, it was a down week. dow was down 1.3%. s&p was down more than 1% for the month. dow and s&p both down 2% for the month of august. isle not looking all that good. the nasdaq for the week, it was also down .5%. we should mention however some of the biggest gainers for the week. that was really coming from utilities. remember utility stocks, very interest-rate sensitive. i’m deborah kostroun.
>> banking and retail stocks led the nasdaq lower. robert gray has details from the nasdaq market site in times square.
>> nasdaq composite close -- closing lower in friday’s session and lower for the week. the fourth consecutive weekly decline. that is the first time we’ve seen a month straight of decline since april. nasdaq falling in friday’s session even as crude oil prices closed lower. still staying above $66 a barrel there. was a decline in consumer sentiment from the university of michigan’s monthly report. it was bigger drop than expected for that. also weighing on markets today, chairman alan greenspan making comments out in jackson hole, wyoming, saying the fed is going to pay closer attention to the rising values of assets such as stocks and houses. do want to look within friday’s trading. we saw interest-rate sensitive stocks such as the banking stocks the biggest decliners. transports were the biggest decliners. they eased off paring those losses as crude closed lower in the session. one of the biggest losers as far as the group go friday. industrials losing. that’s where the retail stocks are and computer-related shares were weak, as well. within retail we saw petco animal supplies. falling on its forecast. also bed bath and beyond. sears holding, costco we saw declines a cross the board in a lot of the retail names. weakness in pixar shares falling. the company being investigated by the securities and exchange commission. pixar saying it’s complied with their request. spokesman declining further comment, but the company may not have given enough information to investments soon enough about slowdown of sales of the d.v.d. “the incredibles.” credence systems plunging on their forecast. saw those shares falling. take a look at the philadelphia semiconductor index. weakness in the sox. we did see one exception of course, omni vision technology surging. captain’s micro chips run digital and mobile phone cameras. they are rising on their forecast. at the nasdaq, i’m robert gray.
>> very good. thank you. the food and drug administration has put off making a decision on nonprescription sales of morning-after birth control pill. the f.d.a. cites questions how to deal with teenagers’ use of the pills and plans to hold a public comment period.
>> rather than putting into place such sweeping policy in the context of a decision on a single drug we need to have an open process to solicit public comment on this policy change before we embark on it.
>> barr labs, maker of the drug hoping for approval of this emergency contraceptive which is intended for use within 24 hours of unproketted sex. barr labs has been seeking aprofessional to sell the product without a prescription since 2003. where do crude oil prices go from here? michael lynch is next on “bloomberg after the bell.”
