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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (37264)	5/24/2001 11:02:46 PM
From: Sully-	Read Replies (1) \| Respond to of 65232

Greenspan Warns of Economic Weakness Federal Reserve Chairman Alan Greenspan Warns That Economic Weakness Has Not Yet Ended By MARTIN CRUTSINGER AP Economics Writer WASHINGTON (AP) -- Federal Reserve Chairman Alan Greenspan, warning of ``considerable uncertainties'' in the economic outlook, said Thursday night that the current period of slow growth has not yet ended. He said there was still a threat that business activity could weaken further. While delivering a sober assessment of the dangers still facing the economy, Greenspan signaled that an absence of inflationary pressures left the central bank with plenty of room to cut interest rates further if needed to guarantee that a sustained rebound will occur. ``The period of sub-par economic growth is not yet over, and we are not free of the risk that economic weakness will be greater than currently anticipated, requiring further policy response,'' Greenspan said in a dinner speech to Economic Club of New York. Greenspan did not use the word ``recession,'' but his remarks signaled that a possible recession remained a threat to the economy. Private economists said they viewed Greenspan's remarks as a clear indication that the central bank was prepared to cut rates further given the lingering weakness in the economy. ``Greenspan is right. We are not out of the woods yet concerning whether we will avoid a recession,'' said David Wyss, chief economist at Standard & Poor's in New York. He predicted that the Fed will cut rates by another half point when its policy-makers meet again on June 26-27. The Fed has already cut interest rates five times this year in the most aggressive easing move ever carried out during Greenspan's nearly 14 years as head of the central bank. Those moves have reduced the federal funds rate, the interest that banks charge each other, by 2.5 percentage points, driving borrowing costs for millions of American consumers and businesses to the lowest level in seven years. Noting these moves, Greenspan said, ``Our front-loaded policy actions this year should be providing substantial support for a strengthening of economic activity later this year.'' But Greenspan indicated that concerns about greater-than-expected weakness were likely to persist for ``several quarters.'' Signaling that the Fed was prepared to cut rates further, Greenspan said that he could detect no signs that inflation was threatening to get out of control. He said the economic slowdown that began last summer was helping to hold down prices. ``The lack of pricing power reported overwhelmingly by business people underscores an absence of inflationary zest,'' Greenspan said. He predicted that inflation pressures should lessen further as energy prices retreat and the rising unemployment rate takes pressure off previously tight labor markets. Greenspan's speech, copies of which were released in Washington, stood in contrast to speeches by other Fed officials this week, which had generally struck a more optimistic tone about the prospects of a rebound. Earlier Thursday, Federal Reserve Board member Laurence Meyer said he believed the Fed's rate cuts would help the U.S. economy return to an annual growth rate of around 3.5 percent to 4 percent. That is the level the central bank considers optimal. ``As the effect of the recent easing takes hold ... growth should gradually recover and the economy should gradually return to trend growth,'' said Meyer. On Tuesday, two other Fed officials, Anthony Santomero, head of the Fed's Philadelphia regional bank, and Gary Stern, president of the Minneapolis Fed branch, had both predicted a return to healthy growth of around 3 percent to 4 percent, with Stern saying he was looking for a ``significant'' improvement in the second half of this year. In his speech, however, Greenspan chose to emphasize the number of threats still facing the economy. He said that businesses were continuing their efforts to curb production to get rid of an excess of unsold goods. He said that excess inventories of high-tech products, such as computers, semiconductors and communications equipment, have backed up significantly as demand has flagged. Higher energy prices also are likely to ``weigh on the economy'' in the short run, putting a squeeze on corporate profits, Greenspan said. And he raised concerns about how well the consumer -- the main force propping up the economy -- will hold up in the face of a prolonged period of weaker growth and rising unemployment. He said eventually businesses will be able to get their stockpiles better in line with demand and will begin placing new orders. However, he said, there remained ``considerable uncertainties'' about when this will occur and how strong the rebound in orders and production will be. biz.yahoo.com Ö¿Ö

To: Jim Willie CB who wrote (37264)	5/24/2001 11:04:37 PM
From: stockman_scott	Read Replies (1) \| Respond to of 65232

JW: I wish you weren't so optimistic <VBG>... Greenspeak's got an update for ya... _________________________________________________________ Greenspan: U.S. Economy Not Out of Woods Thursday May 24, 9:53 pm Eastern Time By Daniel Sternoff <<NEW YORK (Reuters) - Federal Reserve Chairman Alan Greenspan said on Thursday the U.S. economy is still at risk of weakening more than anticipated, but added the aggressive interest rates cuts the Fed has already made this year should offer the economy ``substantial'' support by year end. ``This period of sub-par economic growth is not yet over, and we are not free of the risk that economic weakness will be greater than currently anticipated, requiring further policy response,'' Greenspan told the Economic Club of New York. ``But we also need to be aware that our front-loaded policy actions this year should be providing substantial support for a strengthening of economic activity later this year,'' he said. Greenspan's speech came nine days after the Fed cut interest rates by an aggressive half-percentage point for the fifth time this year to boost the shaky U.S. economy and was his first in-depth address on the economy in three months. The Fed chief's words led some economists to think this cycle of aggressive interest rate cuts may be drawing to a close. Fed policymakers next gather on June 26-27. EASING CYCLE MAY BE ENDING -- ANALYSTS ``He's leaving his options open but sending a signal that the end is near for interest rate cuts,'' Northern Trust chief economist Paul Kasriel said. Reaction in Asian markets after the speech was released was muted. Some debt traders appeared to take Greenspan's statement that there could be a risk of more economic weakness as a sign more rate cuts could be in the offing and U.S. Treasuries climbed in Asian trade. But economists saw a more balanced message. ``Greenspan is very clear in pointing out that there are still downside risks and circumstances for further easing,'' said Dana Johnson, head of research at Banc One Capital Markets. ``But in referring to the front loading of rate cuts and their lagged effect he is clearly telegraphing that he expects the pace of easing to slow.'' NO INFLATION ZEST Greenspan stressed that inflation was under control and that he expected it to remain so in the near future, suggesting the Fed has room to lower rates without risking a flare-up in price pressures. ``The lack of pricing power reported overwhelmingly by business people underscores an absence of inflationary zest,'' he said. ``With energy inflation probably peaking and the easing of tightness in labor markets expected to damp wage increases, prices seem likely to be contained.'' Greenspan cautioned that consumer spending, while currently soft but not ``unduly'' so, could weaken over the next few quarters because of declines in personal wealth. Fed officials keep a sharp eye on consumer spending because it accounts for two-thirds of U.S. economic activity. ``There are also downside risks to consumer spending over the next few quarters,'' the Fed chairman told economists. ``We can expect the decline in wealth that has occurred over the past year to restrain household spending relative to the growth of income, just as the previous increase gave an extra boost to household demand.'' And the Fed chief cautioned that consumer sentiment remains ''fragile.'' He said the sharp rise in energy prices likely contributed to the swift softening in the U.S. economy and cautioned that higher natural gas prices in particular would likely ``weigh on the economy in the short run.'' INVENTORY ADJUSTMENT ``WELL-ADVANCED'' On a positive note, he said that the important process of depleting bloated inventories was ``well-advanced,'' but he said that high-tech stocks still were high. ``Overall, inventory investment of high-tech producers has probably turned negative, but a period of substantial liquidation still appears ahead for these products,'' he said. The Fed chief repeated that he was optimistic about the future course of technology-driven worker productivity gains, saying corporate desire to boost profits has not weakened. ``The persuasive evidence that the growth of structural productivity remains well maintained and that prospective long-term rates of return probably have been only marginally diminished suggests a solid underpinning to capital spending,'' he said. Regarding stock prices, Greenspan said the Fed should not move to prevent declines in asset markets, but that its job was instead to respond to the economic consequences of market swings. ``Our only realistic alternative is to lean against the economic pressures that may accompany a rise in asset prices, bubble or not, and address forcefully the consequences of a sharp deflation of asset prices,'' he said. Greenspan went to great lengths to defend the speed with which the Fed responded to the slowdown in the U.S. economy, saying that if the central bank had cut rates before this year, it would have hampered economic stability. ``Had we moved the funds rate lower at the first sign of economic slowing, we would have created distortions threatening an even greater economic adjustment at a later date,'' he said.>>