NEW YORK (AFX) - Federal Reserve board chairman Alan Greenspan said one of the remarkable things about the brief US downturn is that the imbalances that caused it and could have prolonged it "did not fester." "If the indications that the contraction phase of this business cycle has drawn to a close are ultimately confirmed, we will have experienced a significantly milder downturn than the long history of business cycles would have led us to expect," Greenspan said in a speech prepared for delivery to the Institute for International Finance. "Remarkably, the imbalances that triggered the downturn and that could have prolonged this difficult period did not fester," Greenspan said. In a question-and-answer session following his address, Greenspan said there are "early signs" that business capital spending is picking up, although not at a rapid pace. "The reduction in capital investment in recent quarters was driven by a marked retraction in profitability. There are early signs of a recovery although it is doubtful that a recovery will be rapid," Greenspan said. The capital goods market will be a key to the recovery, he added. "It is very evident that growth will be driven by the rapidity to which the capital goods market recovers," he said. Greenspan said that real-time information for corporate executives played a key role in keeping the downturn mild. But a bigger reason may be the "extensive deregulation and innovation" in the financial, energy and transportation sectors. "As a consequence, cyclical episodes overall should be less severe than they otherwise would be," Greenspan said. Greenspan cautioned that this theory "must be considered speculative until more evidence is gathered." But if it is proved true, it should "lower risk and equity premiums." The Fed chairman said the financial sector has been greatly strengthened by deregulation and innovation. For instance, financial derivatives have grown at a phenomenal pace over the past 15 years and "so far, so good," he said. "Obviously, this market is still too new to have been tested in a widespread credit down-cycle," he noted. But federal laws that govern derivatives trading have "struck the right balance," suggesting that he does not support efforts by some members of Congress to increase the federal government's oversight over the derivatives market in the wake of the sudden collapse of Enron Corp. "Of course, latent problems may exist in any market that expands as rapidly as these markets have," he cautioned. "Regulators and supervisors are particularly sensitive to this possibility," he said.