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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (129664)	2/28/2001 1:07:41 PM
From: peter a. pedroli	Respond to of 769670

Wednesday February 28, 12:46 pm Eastern Time Greenspan: Risk of Excessively Weak Econ By Marjorie Olster WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan said on Wednesday the U.S. economy seems set to turn in an excessively weak performance even after deep interest rate cuts, but left markets guessing about the timing of the next rate moves. Disappointed financial markets fell after the influential central banker failed to answer Wall Street's burning question -- whether the Fed will reduce borrowing costs again before its next scheduled meeting on March 20. ``We have obviously specified implicitly that we prefer to act within our scheduled meetings,'' Greenspan told lawmakers on the House Financial Services Committee during the second leg of his twice-yearly monetary policy testimony. ``But we have also shown over the years that when we perceive that actions are required between meetings we have never hesitated to move,'' he added. News that Greenspan would take the unusual step of altering his recent testimony, which he delivered two weeks ago to the Senate Banking Committee, had raised hopes in the financial market that he would hint at an inter-meeting rate cut. Stocks turned sharply lower when that hint failed to materialize. The Nasdaq, dominated by technology stocks, was down 2.6 percent while the Dow Jones industrial average of blue chip stocks fell more than 1.2 percent by midday. ``There's nothing that indicates the urgency that the markets had priced in,'' said David Orr, chief economist at First Union Corp. in North Carolina. Initially, the stock market was little changed after seeing the slightly modified version of Greenspan's testimony. He added a few paragraphs which included both upbeat and somber statements, but gave a clearer signal that further rate cuts were in the cards. ``The economy appears to be on a track well below the productivity-enhanced rate of growth of its potential and, even after the policy actions we took in January, the risks continue skewed toward the economy's remaining on a path inconsistent with satisfactory economic performance,'' Greenspan said in the prepared text. The Fed cut rates by a total of a full percentage point in two moves on Jan. 3 and Jan. 31. THE BRIGHTER SIDE As he did in his prior testimony, Greenspan tried to soothe investors, businesses and consumers anxious about the threat of a recession. He said the dramatic slowdown of late 2000 was ''less evident'' in January and February. ``Obviously, if the forces contributing to long-term productivity growth remain intact, the degree of retrenchment will presumably be limited,'' he said. ``In that event, prospects for high productivity growth should, with time, bolster both consumption and investment demand.'' Earlier on Wednesday, a revised estimate of fourth-quarter growth showed that the economy grew at its weakest pace since the spring of 1995, expanding at an annual clip of 1.1 percent versus a previously reported 1.4 percent rate. Greenspan, who has consistently emphasized the importance of keeping the fabric of consumer confidence intact, said the Fed would have to closely watch sentiment after its recent ''steep falloff.'' But in one of the amended paragraphs, the Fed chief was cautiously optimistic, saying confidence seemed to be holding up reasonably well. ``For now, at least, the weakness in sales of motor vehicles and homes has been modest, suggesting that consumers have retained enough confidence to make longer-term commitments; and, as I pointed out earlier, expected earnings growth over the longer-run suggesting that consumers have retained enough confidence to make longer-term commitments,'' Greenspan said. A range of confidence indicators have shown marked weakness recently. The Conference Board said on Tuesday its index measuring Americans' confidence in the U.S. economy slumped in February for the fifth straight month to its lowest level in more than four and a half years. DATA GIVE MIXED MESSAGE Recent data showing a weakening in the housing market in January should not be seen as evidence of a major slowdown in housing -- one of the bright spots in the economy, Greenspan said in response to a question. ``The decline in new home sales...merely puts the number back to where it was late last year,'' he said. Honing in on what he sees as one of the chief causes of the slowdown in the broader economy, Greenspan said the United States was in the midst of an inventory correction which could go on for some time. ``I'm arguing in effect that there is a big adjustment process that still has a way to run,'' he said. The battered stock market is certainly contributing to the general economic malaise, he said. Greenspan said he had no doubt that the so-called wealth effect caused by rising stock prices had been a major factor in the U.S. economic expansion over the last several years and the current equity downturn was reversing the process. But it is too soon to say whether a reverse wealth effect alone could cause a recession. ``Whether it in and of itself is enough to actually induce a significant contraction which in retrospect we will call a recession is yet too early to make a judgement on,'' he said.