NEW YORK (AFX-ASIA) - Federal Reserve board chairman Alan Greenspan said that the "front-loaded" 250 basis point reduction in short-term interest rates engineered by the Fed since Jan 3 should lead to a pickup in economic activity later this year.
"We need also 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," Greenspan said in remarks prepared for delivery to the Economic Club of New York.
At the same time, Greenspan cautioned that the "period of sub-par growth is not yet over."
He said the economy is "not free of the risk that economic weakness will be greater than currently anticipated, requiring further policy response."
The Fed chairman said the rate cuts are already having some positive effect.
"As a consequence (of the easing), some of the stringent financial conditions evident late last year have been eased. Real interest rates are down substantially in a wide variety of borrowing instruments. "Private rates have benefitted from a narrowing of risk premiums in many markets, like those for riskier commercial paper and high-yield bonds and growth of liquidity, as measured by M2, has picked up," he said.
Greenspan said despite his "concerns about the next several quarters" there is ample evidence that the U.S. economy is only experiencing "a pause in investment in a broad set of innovations that has elevated the underlying growth rate in productivity to a level significantly above that of the two decades preceding 1995."