Greenspan: U.S. Economy Turning the Corner
Thursday January 24, 2:20 pm Eastern Time
By Joanne Morrison
WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan on Thursday said the U.S. economy is emerging from recession and questioned the need for a fiscal stimulus package.
``We are just at this particular point turning, as best I can tell it,'' the powerful central banker told lawmakers on the Senate Budget Committee, who are weighing plans to cut taxes and boost government spending to bolster the economy.
Greenspan's comments reinforced expectations the Fed will leave interest rates alone when it meets next week and also clarified confusion the Fed chief left in the wake of a Jan. 11 speech, when he seemed to suggest it was too soon to say a recovery was at hand.
Stocks rose on Greenspan's remarks because his tone was noticeably more upbeat than his Jan. 11 address in San Francisco -- an economic assessment he admitted on Thursday could have been worded better.
In his testimony on Thursday, the Fed Chairman said the U.S. economy underwent a ``significant cyclical adjustment'' last year, worsened by the Sept. 11 attacks. ``But there have been signs recently that some of the forces that have been restraining the economy over the past year are starting to diminish and that activity is beginning to firm,'' he said.
However, he warned that although he expected consumer spending -- a key underpinning of the world's richest economy -- to pick up, its growth may be limited.
``There are a number of pluses and minuses in the outlook for household spending,'' Greenspan said, noting that the unemployment rate may continue to rise and that this may put a damper on how much consumers spend.
Business income and spending may get a boost with the inventory sell-off nearly at an end, Greenspan said, but that effect could be short-lived without sustained demand growth.
A cut-back in corporate spending was a key culprit behind the slowdown that began late in 2000.
Greenspan added another cautionary note during questioning, saying that there was the ``potential that the economy may be more tepid than we would like later in this year.'' If that were the case, a stimulus program would be useful, he said.
ECONOMIC STIMULUS NEEDED?
Greenspan offered few specifics in his testimony on the hot topic of fiscal stimulus except to say that the current budget picture was not dire, despite a massive reduction in the 10-year surplus forecast.
But with the economy recovering, he questioned whether lawmakers need to proceed now on tax cuts and government spending measures being mulled as part of a fiscal stimulus package. The White House, stymied by partisan bickering in its efforts to push a package through Congress, said later that it could change its view on the need for stimulus.
``Whether we do it or we don't, there are pluses and minuses. I do not think it is a critically important issue -- I think the economy will recover in any event,'' Greenspan told the budget panel.
At the same time, he urged lawmakers to be mindful of pressures that will face the budget in the future, when the huge Baby Boom generation enters retirement years around 2010.
Greenspan's comments come as the Senate prepares to debate a $69 billion stimulus package. The Democrat-backed package includes tax cuts for new business investment, rebates for low-income workers, extended unemployment benefits and more federal aid to cash-strapped states.
That plan is considerably smaller than the $200 billion multiyear plan backed by President Bush and congressional Republicans.
Greenspan's cautiously upbeat message on Thursday was coupled with a forecast from a White House economic aide that the economy would show modest growth in the first quarter of 2002 followed by more robust gains in the second half.
``First quarter GDP (Gross Domestic Product) growth would be quite modest, second-quarter GDP growth a little bit more robust, and then very robust in (the) third and fourth quarters,'' Glenn Hubbard, Chairman of the White House's Council of Economic Advisers, said after a closed-door meeting with lawmakers on Capitol Hill.
Greenspan himself said he thought U.S. economic growth was near zero right now. In the third quarter, the latest for which the data are available, the economy contracted 1.3 percent.
White House spokesman Ari Fleischer agreed there were signs of recovery, but tempered that optimism a bit.
``There are increasing signs of strength and recovery in the economy, but there are clouds as well,'' Fleischer said, leaving open the need for the Bush team's fiscal stimulus plan.
ECONOMIC DATA ABOVE EXPECTATIONS
Over the past two weeks, a spate of economic data from retail sales to jobless claims to manufacturing activity have beaten analyst expectations. Those reports, along with a push for reinterpretation of the Jan. 11 speech from Fed officials, have most analysts forecasting that the Fed will stand pat on interest rates when they meet next week.
In the speech earlier this month in San Francisco, the tone of Greenspan's remarks led markets to expect a quarter-point interest rate cut at the Jan. 29-30 meeting.
Responding to questions about that earlier speech, Greenspan admitted that he should have used better phrasing.
``It turned out that we showed a far greater degree of resiliency and flexibility and the economy stabilized (after Sept. 11),'' he said. ``I was trying to make that point without getting to an issue of whether we were going to snap back quickly or not so quickly.''
He added: ``That created, unfortunately, phraseology which in retrospect I should have done differently which implied that I didn't think the economy was in the process of turning, and I tried to rectify that in today's remarks.''
Analysts said he succeeded.
``Greenspan was more upbeat this time than he was last time. Obviously he can't say that everything is wonderful, but his view is evolving based on the flow of data since he spoke last,'' said Harvey Katz, chief economist with Value Line Inc. in New York. |
