Greenspan: U.S. Economy Has Hit 'Soft Patch'
URL: foxnews.com
Wednesday, November 13, 2002
Federal Reserve Chairman Alan Greenspan told Congress Wednesday that the central bank cut rates sharply last week against a backdrop of growing evidence the U.S. economy had hit a "soft patch" amid falling stock prices and dimming business prospects.
Greenspan said the Fed's decision last week to cut interest rates by a larger-than-expected half point was the central bank's response to the growing dangers and he repeated the Fed's view in its rate cut announcement that the central bank believed the economy would be able to pull out of the current weak period.
But Greenspan told the Joint Economic Committee there was no doubt that a number of forces were holding back growth currently. He cited in particular the fallout from revelations about corporate accounting scandals, the continued reluctance of businesses to increase their investment spending and "heightened geopolitical risks."
"Over the last few months, these forces have taken their toll on activity and evidence has accumulated that the economy has hit a soft patch," Greenspan told the panel.
Greenspan said all of these problems were creating uncertainty among consumers, who have been the driving force in the current recovery, and among businesses.
"Households have become more cautious in their purchases, while business spending has yet to show any substantial vigor," Greenspan said.
He said it was against this backdrop that the Fed's interest rate panel, the Federal Open Market Committee, decided last week to cut its target for the federal funds rate, the interest that banks charge on overnight loans, by a half-point to 1.25 percent, the lowest level in 41 years.
Greenspan gave no hint in his prepared testimony about what the central bank might do next, but private economists believe if the economy continues to weaken, the central bank will cut rates again either at its next meeting in December or at its first meeting of the new year in January.
Greenspan said that even with the current slowdown, the U.S. economy has proven its adaptability over the past year since the Sept. 11, 2001 terrorist attacks, managing to grow at an average rate of 3 percent over since the fourth quarter of 2001.
"A year ago, we were struggling to understand the potential economic consequences of the events of Sept. 11," Greenspan said. "The United States economy, however, proved to be remarkably resilient."
Greenspan was praised during his appearance by Rep. James Saxton, R-N.J. and chairman of the panel, for his record over 14 years as Fed chairman for wringing inflation out of the economy.
But Greenspan sought to deflect the praise, saying that the "really difficult work" in getting inflation down from double-digit levels of the early 1980s had occurred under the chairmanship of his predecessor, Paul Volcker.
Reuters and the Associated Press contributed to this report. |
