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CNN Today

Rises in GDP, Wages Pressure Fed on Interest Rates

Aired April 27, 2000 - 1:01 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LOU WATERS, CNN ANCHOR: The United States economy is flying high, but some Wall Street investors have white knuckles. A new round of reports indicates the economy expanding, wages rising, consumers spending. But that has some folks looking inside the silver cloud for a dark lining.

The Commerce Department says the gross domestic product grew at 5.4 percent annual rate during the first three months of the year and the Labor department says wages and benefits rose 4.3 percent in the 12 months that ended in March.

The report on wages is drawing special attention, some folks refer to it as Greenspan's pet report because Federal Reserve Chairman Alan Greenspan is believed to scrutinize it when making decisions about inflation and higher interest rates.

CNN's Bill Dorman is in New York to help us sort things out.

When Alan Greenspan looks at this, he is going to see inflation, is he not, Bill? and that means, as some are already predicting, another interest rate increase on May 16. Maybe a half point this time.

BILL DORMAN, CNN CORRESPONDENT: Well, we will have to see that quarter point or half point but it's true that this is a -- this figure out today shows the fastest growth in more than 10 years when it comes to wages and benefits. And as you said, Alan Greenspan, this statistic is known to be a favorite of his because he believes that this is a very good indicator of future inflation.

Now the economy, we all know, has been doing extremely well, it continues to surprise and stun on the upside. Now, the problem with this, in terms of the inflationary fears, the cure for inflationary fears is higher interest rates and the Fed meets again in a little under three weeks. So the thinking right now is that we are going to see a move higher then, but also that may not be the last move, a quarter point, could be a half point. But also not likely to be the last move -- Lou.

WATERS: The purpose of these interest rates, of course, is to slow down the economy. So, would you say that home buyers, car buyers might want to think about buying now?

DORMAN: It could be, I mean, depending, of course, on your financial situation right now. But interest rates really are simply the cost of money and what, the Fed has raised interest rates five times since last June. But we are still in what economists call a rising interest rate environment. That simply means that money is continuing to become more expensive. So if you borrow money, just know going in that it is likely to cost you more in coming months than it does right now -- Lou.

WATERS: All right, Bill Dorman in New York.

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