Beginning to see first signs of inflation through tighter labour market: Alan Greenspan

Answer: Alan Greenspan (Image: Reuters)

Rising debt in United States (US) could hurt current expansion and a tighter labour market could raise inflation, former Federal Reserve Chairman Alan Greenspan said in an interview to Bloomberg Television.

“I’m beginning to see the first signs of it,” Greenspan told the news agency talking about inflation in the US economy.

The Federal Reserve, which has set an inflation target of 2 percent, last week held its interest rates.

Greenspan, who headed the Federal Reserve from 1987 to 2006, pointed out that the recent hike in average wages was not supported by productivity.

“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,” Greenspan said on Bloomberg’s “The David Rubenstein Show: Peer-to-Peer Conversations”.

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This is not the first time Greenspan has cautioned against a tightening labour market.

"This is the tightest market, labour market, I've ever seen," Greenspan told CNBC last month.

Consumer price inflation was 2.5 percent in October, the highest increase in nine months, Labor Department data said on November 14.

Unemployment rate in the US is at a low of 3.7 percent, the lowest since 1969, and annual wage growth recorded its largest increase in nine-and-a-half years in October.

Greenspan also spoke to Bloomberg about tax cuts.

“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.” Greenspan added.

Greenspan added that controlling spending on Social Security, Medicaid and Medicare could bring the US' finances to a stable position.