18 July 2001, 19:11 Fed is ready to ease some more if necessary
WASHINGTON (MktNews) - Federal Reserve Chairman Alan Greenspan,
after making sure he was clear that the Fed is ready to ease some more
if necessary, went on to say the central bank can only do so much to
influence human nature, and booms and busts are beyond its power to
eliminate.
"Too often people are prone to recurring bouts of optimism and
pessimism that manifest themselves from time to time in the buildup or
cessation of speculative excesses," he said in his testimony to the
House Financial Services Committee.
"We recognize that this policy process may require substantial
swings in the federal funds rate over time to help stabilize the
economy," he said, in the first leg of his semi-annual testimony to
Congress, formerly known as the Humphrey-Hawkins testimony.
Greenspan is due to testify before the Senate Banking Committee
July 24 in the second leg of the twice-yearly event.
"In reducing the federal funds rate so substantially this year, we
have been responding to our judgment that a good part of the recent
weakening of demand was likely to persist for a while, and that there
were significant downside risks even to a reduced central tendency
forecast," he said.
Greenspan repeated his outlook for a weak economy several times,
saying that inflation is "low and likely to be contained," and so "the
main threat to satisfactory economic performance appeared to come from
excessive weakness in activity."
At another point on the final pages of his testimony, he said, "The
period of sub-par economic performance ... is not yet over and we are
not free of the risk that economic weakness will be greater than
currently anticipated and require further policy response."
Front-loaded monetary easing and the tax cuts underway "should be
increasingly affecting economic activity as the year progresses,"
Greenspan said.
His most positive outlook, that he saved for the conclusion, was
placed in the context of "years," not quarters.
"As for the years beyond this horizon (through 2002) there is
still, in my judgment, ample evidence that we are experiencing only a
pause in the investment in a broad set of innovations that has elevated
the underlying growth in productivity to a rate significantly above that
of the two decades preceding 1995," he said.
"Once the forces that are currently containing investment
initiatives dissipate, new applications of innovative technologies
should again strengthen demand for capital equipment and restore solid
economic growth," he said.
© 1999-2024 Forex EuroClub
All rights reserved