Clouds on US economic horizon

Alan Greenspan (centre) defended interest rate rises

The United States has enjoyed the longest economic expansion in its history powered by high technology, but clouds are on the horizon, according to a group of economists and stock market analysts.

The warnings came at a daylong conference on the new economy at the White House and on the heels of several days of market volatility.

President Clinton was looking for answers on how to keep the record nine-year long expansion, and the president brimmed with optimism about the possibilities of the high-tech economy for the US and for nations still mired in poverty.

"I believe that the computer and the Internet give us a chance to move more people out of poverty more quickly than at any time in all of human history," he said.

An ironic participant

Another participant painted a bright picture of the future, Microsoft co-founder and Chief Software Architect Bill Gates.

Desktop PCs help power the US economy but could soon be a thing of the past

It was an ironic appearance, coming just two days after a US judge ruled that Microsoft illegally attempted to monopolise the web browser market.

Mr Gates said: "[The] technology revolution has been one of the greatest job creation engines ever," and added that the best is yet to come.

"Breakthroughs ... will allow computers to listen, to learn, to be in a tablet form connected up to a wireless network that you just carry around with you," he said.

Mr Clinton praised the embattled software pioneer for his philanthropy. Mr Gates and his wife have contributed $750m to wire libraries, combat global poverty and fight disease.

Clouded future

But economists and market analysts warned that the tight labour market and mounting trade deficits could derail the engine of growth.

Federal Reserve Chairman Alan Greenspan defended the central banks five interest rate increases in the last 10 months saying that they were necessary to correct imbalances such as the shortage of labour.

The bank fears competition for workers will drive up wages and trigger inflation, and Yale University economics professor William Nordhaus spoke to these concerns at the conference.

"The speed limit (for economic growth) has been raised, but there is still a speed limit," he said.

Defending rate hikes

The hopes the higher rates will lessen consumer demand, which is also driving trade deficits to record levels.

Recent market volatility worried conference participants

The trade deficits, which rose to a record $267.6bn could also harm the economy if foreign investors stop buying US assets such as stocks.

International economist C Fred Bergsten said foreign investors could panic and flee US markets, which could put downward pressure on the dollar.

"A sharp decline in the dollar would push up interest rates and push down the stock market," he said.

Market ups and downs

The recent volatility on the stock market was also a concern at the conference.

Former Clinton administration Treasury official Roger Altman said he believed that the market was already experiencing a correction, which he said was likely to be a "sharp one" in terms of technology stocks.

The former member of the administration turned investment banker said stocks in the technology sector had soared despite the absence of profits.