Greenspan Says U.S. Economy Still Faces Near-Term Risks
A WALL STREET JOURNAL ONLINE News Roundup
Federal Reserve Chairman Alan Greenspan moved Friday to curb Wall Street's expectations of an imminent economic recovery, saying the U.S. economy faces "significant" near-term risks despite some signs of improvement recently.
Making his first public comments on the economic outlook in three months, Mr. Greenspan warned that the improvement reflected in the latest economic data could prove to be temporary.
"I would emphasize that we continue to face significant risks in the near term," Mr. Greenspan said, speaking at a business conference in San Francisco.
He identified some of those threats as weak corporate profits and business investment, and restrained household spending caused by rising unemployment.
But he said there are tentative signs that a recovery could be somewhere on the horizon.
"If the recent, more favorable developments continue and gain momentum, uncertainties will diminish," he said.
See the full text of Greenspan's speech.
Mr. Greenspan's comments appeared to leave the door open to another interest-rate cut, possibly at the Fed's next meeting on Jan. 29-30.
The current recession, which ended a record 10-year period of U.S. prosperity, has officially been dated as starting last March. But Mr. Greenspan noted in his comments that the economy has been struggling with weak growth ever since the summer of 2000.
The Fed began aggressively cutting interest rates in January 2001, reducing its target for the federal-funds rate, the interest that banks charge each other, from 6.5% at the start of last year down to the current level of 1.75%, the lowest in 40 years.
Mr. Greenspan said that before the Sept. 11 terrorist attacks, there were signs that the economy had begun to stabilize, but those gains were wiped out with the severe jolt dealt to consumer and business confidence by the attacks.
But economists have expressed guarded optimism that a recovery could begin soon, and investors have sent stocks higher in recent months largely on that hope.
Mr. Greenspan cautioned that economic forecasting has been made even more difficult by the "major uncertainty that we all must deal with these days -- the specter of further terrorist incidents on American soil. It simply is not possible to predict whether there will be any such incidents or to forecast their possible consequences for the economy."
Mr. Greenspan, as he has done in other remarks since Sept. 11, did contend that the significant rebound in the growth of American workers' productivity in recent years is likely to continue. The big improvement in productivity has, in part, quelled worries about inflation dangers.
Mr. Greenspan said that in recent weeks there have been signs that the economy is now stabilizing after huge job losses in the two months immediately after the terrorist attacks.
He noted that consumer spending, which stayed strong through much of last year, is continuing to rise, although at a more subdued rate. Such spending, he said, will be helped by substantial declines in energy prices.
But he said that the unemployment rate, which hit a six-year high of 5.8% in December, is likely to continue rising even after the recovery begins. He noted, however, that new claims for unemployment benefits have tapered off recently.
"To be sure, a great deal of real economic pain has been felt over the past year and a half," he said. |
