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Greenspan Says U.S. May Be Seeing First Signs of Inflation

(Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said a rising U.S. debt burden could derail the current expansion and warned the tight labor market could lift inflation.

“I’m beginning to see the first signs of it,” Greenspan said about inflation during an interview on “The David Rubenstein Show: Peer-to-Peer Conversations” on Bloomberg Television. “We’re seeing it basically in the tightening of the labor markets first, which, as you know, have gotten very tight now. We’re beginning finally to see average wages rise, and clearly there’s no productivity behind it.”

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Greenspan Says U.S. May Be Seeing First Signs of Inflation

Inflation measured by the the Fed’s preferred gauge of price pressures known as the personal consumption expenditure index was 2 percent -- at the central bank’s target -- in the 12 months through September after running mostly below that threshold since 2012. A separate gauge, the consumer-price index, rose 2.5 percent in October from the year before, according to a Labor Department report Wednesday.

Unemployment has falling to 3.7 percent, the lowest level since 1969, and average hourly earnings are creeping up.

Greenspan said a lack of productivity growth meant “you’re getting into a system now which has no outcome that’s in equilibrium other than inflation and no productivity growth.”

Greenspan Says U.S. May Be Seeing First Signs of Inflation

The former Fed chief, who retired from the central bank in 2006, also warned that rising U.S. debt levels could undermine the economic expansion.

“The tax cut actually did get a buoyancy, and we’re still feeling some of it, but it’s nowhere near enough to offset the actual deficit,” Greenspan said. “You can’t have a tax cut without finding the revenues elsewhere, or you run into problems.”

Tax cuts and federal spending signed by President Donald Trump helped spur business confidence and lift U.S. growth to 3 percent in the year through the third quarter. But the deficit widened to a six-year high of $779 billion during Trump’s first full fiscal year, raising concern the country’s debt load of more than $21.7 trillion will grow out of control. The government on Tuesday reported a $100.5 billion budget gap for October, the first month of the new fiscal year, an increase of about 60 percent from a year earlier.

Greenspan said curbing spending on Social Security, Medicaid and Medicare were key to putting the nation’s finances on a sustainable footing.

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