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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: aerosappy who wrote (15136)	7/16/2002 12:57:42 PM
From: stockman_scott	Respond to of 23153

Economy Is on Road to Recovery, Greenspan Tells Congress By KENNETH N. GILPIN The New York Times 7/16/02 The economy is continuing to build momentum, Alan Greenspan, chairman of the Federal Reserve Board told senators today, but "considerable uncertainties still confront us." Despite those worries, which range from further revelations of corporate malfeasance to risks from further terrorist attacks, Mr. Greenspan said in his semiannual report on the economy to the Senate Banking Committee that the central bank had raised its forecast for economic growth during the current year to 3.5 percent to 3.75 percent, from a previous estimate of 3 percent to 3.25 percent. For 2003, the Fed is projecting growth of 3.5 percent to 4 percent. Inflation, which is running at its lowest rate in forty years, will remain subdued, Mr. Greenspan said, rising at only a 1.5 percent to 1.75 percent rate. The stock market, which has been in a steady, almost alarming retreat for weeks, was mixed following Mr. Greenspan's prepared remarks. By midday, the Dow Jones industrial average was down 59.40 points, or 0.7 percent, to 8,579.79. The Standard & Poor's 500-stock index was down 4.76 points, or 0.5 percent, to 913.17. But the Nasdaq composite index was up 16.25 points, or 1.2 percent, to 1,398.87. Mr. Greenspan addressed the performance of the stock market in his remarks, noting that financial markets were "notably skittish. "In part, these attitudes reflect the lingering effects of the shocks that our economy endured in 2000 and 2001," he said. "Particularly given the dimensions of those shocks, some persistent uncertainty and concern are not surprising." In a speech he gave in late December 1996, Mr. Greenspan famously warned about "irrational exuberance" among stock market investors, suggesting that stock prices were overvalued. That speech failed to temper investor enthusiasm. But analysts said the steady decline in stock market averages over the last two years had wrung virtually all of the speculative froth out of stock prices. David Resler, chief economist at Nomura Securities International, said that from Dec. 6, 1996, the day of Mr. Greenspan's speech, through July 11, the S.&P. 500 had gained 25.4 percent. Nominal growth in gross domestic product during that period is up 32.4 percent. "On a historical basis, the performance in stocks is now not so great," Mr. Resler said. "It suggests that stocks are back to being fairly valued." Mr. Resler and others said Mr. Greenspan presented nothing to suggest that the Fed was likely to alter its current stance on monetary policy anytime soon. To keep the economy moving after the Sept. 11 terrorist attacks, the central bank lowered its target for short-term interest rates to 1.75 percent, its lowest in four decades, and it has maintained that stance so far this year. Mr. Resler said he is a bit uncomfortable with his current forecast, which has the central bank beginning to raise short-term rates in March of next year. "It doesn't seem we have conditions for tightening monetary policy as soon as we are forecasting it," he said. "If inflation stays as low as it has been, you can make a case the Fed will be on hold for much longer than that." In his remarks, Mr. Greenspan went on at some length on corporate governance issues. "Why did corporate governance checks and balances that served us reasonably well in the past break down?" he asked. "At root was the rapid enlargement of stock market capitalizations in the latter part of the 1990's that arguably engendered an outsized increase in opportunities for avarice." nytimes.com