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To: Shadowed who wrote (9848)	5/24/2001 10:52:45 PM
From: Tom Hua	Read Replies (1) \| Respond to of 19633

Shadowed, bellow is a more comprehensive view/analysis of Greenspan's speech tonight. Regards, Tom Thursday May 24, 9:53 pm Eastern Time Greenspan: U.S. Economy Not Out of Woods 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.