Ground Floor: Years ago, when we talked about the advance of technology and the paperless office, we all believed that our working lives would be immeasurably easier, we would have more leisure time and - happy days - we would retire earlier! Naturally, that hasn't happened, writes Sheila O'Flanagan
Technology has relieved us of the chore of some repetitive tasks (though replacing them with repetitive tasks of its own and frustrating moments of letting you down, such as when the printer decides it needs new toner just as you're about to do the 500 copies for an important meeting).
Our leisure time has morphed into periods when we're not exactly in the office but not entirely out of touch thanks to the mobile phone; and of course retiring early might have happened to those of us who managed to cash in the stock gains made in the 1990s but for everyone else, thanks to those same stock markets and their subsequent falls, the pension plan is in a much ropier state that we would have wanted and a whole swathe of people have resigned themselves to working for much longer than they'd anticipated.
I feel quite certain that Alan Greenspan's pension plan is quite healthy. As healthy as the man himself, one hopes, since - at age 78 - he was recently re-appointed to serve a fifth term as president of the Federal Reserve, a job he's done for the past 17 years. (I know that my own retirement day must be getting more imminent since I remember him being appointed in the first place and it doesn't seem that long ago!) Greenspan will be 82 when he finally does retire, proving that age isn't an impediment if you're doing a good job but also frustrating anyone else who'd like to be at the helm of the Fed!
In late 1987, Fed Funds were set at 7.25 per cent. During early 1988, the rate decreased slightly but by late March it returned to an upward trajectory, culminating in a rate of 9.625 per cent by June 1989. For those of us accustomed to low-level inflation and interest rates, 9.625 per cent sounds frighteningly high. But by the early 1990s rates began their inexorable decline, fuelled by the new paradigm and the return to economic prosperity that was led every step of the way by the US.
And Greenspan was in the driving seat, his every word analysed and scrutinised by market participants and commentators alike.
Who would have thought in June 1989 as they dealt with a 9.625 per cent Fed Funds rate, that by September 1992 it would be at 3 per cent? Then, as Greenspan wrestled with his concerns about "irrational exuberance" and potential inflation problems, he tweaked rates higher while the economy continued to roar ahead.
The collapse of the technology sector and the subsequent implosion of stock markets allowed him to loosen the monetary policy reins again.
As the dreaded R for recession began to be whispered around the world, Greenspan didn't allow himself to be rushed. From 1999 until mid 2001, rates stayed around 6 per cent.
But as concerns about the strength of the economy grew, rates began to slide further and further.
Now, almost unbelievably, the Fed Funds rate is at 1 per cent and has been at that level since last summer. The main reason - the jobless recovery. Although the economy had been growing, unemployment was still high. The risk of jeopardising job prospects by raising rates, even with a falling dollar and reasonable consumer spending, was too great.
Since the Federal Open Market Committee meeting on May 4th and the subsequent publication of a stronger employment report for April, the talk has been of rates moving higher in the US again.
In fact, the Fed has been putting it about that a hike will be earlier rather than later, so many people are wondering if Greenspan will pull the trigger in June.
In fact, Alfred Broaddus (63), of the Richmond Fed, recently commented that the markets have priced in a quarter point hike in rates.
So the question really is whether or not rates will continue to tighten post a potential 25 basis points rise in June. The answer is probably yes, but not at the pace that happened previously - in 1994 rates were tightened by 25 basis points in February, March and April, followed by 50 basis points in May and August and a whopping 75 basis points in November. And the Fed hadn't quite finished - it added another 50 in February 1995.
But rates hikes now are likely to be more measured since inflationary pressures (even with hysterical commentary on the oil price hikes) are less now than they were then. However there are potential pressure points.
Savage competition is keeping prices low but there has been an uptick in the level of goods price inflation. That's partly due to the fall of the dollar, of course. If the greenback continues on its merry way downwards, that inflationary level will increase.
In 1994-1995, the level of the dollar remained broadly stable. In 2004 it has remained broadly negative. Domestic demand in the US is still high and the current account deficit remains a considerable worry.
As I've mentioned before, the US needs inward investment to keep the show on the road. So far, Asia has stepped up to the plate. But, if the dollar decline continues, it may not continue to do so.
Greenspan has proved to be an inflation hawk in the past and just because he's a bit older now it doesn't make him any more mellow.
The Fed will not be afraid to raise rates substantially if it thinks that the economic background requires it. But it's unlikely that by 2008 they'll have come full circle and returned to the levels they were at in 1987 - 7.25 per cent: there's a figure Greenspan won't want to see as he walks out the door with his retirement present under his arm.
