Alan Greenspan, chairman of the Federal Reserve Board, said in a speech to business leaders that the continued high growth rates in GDP coupled with low inflation, indicates that we have entered a new period in our country's economic history.  Greenspan believes the revolution in information processing and technology-based processes have ushered in a new era for the U.S. economy.  Rising productivity, which has allegedly been created by the huge amounts of capital investments in technology related areas, has allowed the economy to grow at a rapid pace without creating inflationary pressure.  But Greenspan also warned the country that this remarkable period of productivity growth cannot last forever.  He warns that demand can easily exceed, if not overwhelm, the ability of the economy to improve its production.  When this occurs inflation will be sure to ignite.  The problem though, is no one knows when this scenario of robust productivity growth will play itself out.  Greenspan hints that the Federal Reserve will likely tighten credit markets at the first sign of significant wage or price pressure.  Most analysts feel that the Federal Reserve is likely to raise interest rates at least one more time before year end in an attempt to cool down consumer and business demand for goods and services.

     Why is productivity such an important variable in the discussion coming out of the Federal Reserve?  To understand the situation consider that if wages and salary rise by a 3.3 percent annual rate and worker productivity rises by 2.5 percent over the same period, companies will only have to raise prices by approximately 0.8 percent to maintain their profit margins.  High productivity growth gives us the best of two worlds: higher real income and low inflation.  For now though it appears that labor productivity will be boosted by technology improvements and will remain with us into the next year.  Thus, run away inflation, super high interest rates, and falling income levels are not likely to be a problem in the year ahead.  The worse case scenario might be that the Federal Reserve tightens credit markets and slows income and job creation, but not by nearly enough to cause a recession.  So the outlook remains bright for the economy as we enter the 21st century.  A word of caution some analysts believe that Y2K compliance problems in other parts of the world may put a damper on our domestic economy.  In other words, key trading partners may not be prepared for Y2K.  Only time will tell if this scenario plays itself out.