The US economy has hit a "soft patch" but last week's half point rate reduction by the Federal Reserve should assist the economic recovery, Alan Greenspan said today. In a speech to the Congressional Joint Economic Committee, the chairman of the US central bank said that the decline in capital spending, revelations of corporate fraud, the equity market slump and heightened geopolitical risks continued to weigh on the economy.
"Over the last few months, these forces have taken their toll on activity, and evidence has accumulated that the economy has hit a soft patch," Greenspan said. "In these circumstances, the committee believed that the actions taken last week to ease monetary policy should prove helpful as the economy works its way through this current soft spot," he added.
Greenspan also said that the American consumer had become more cautious, while business spending remained sluggish. The statement was his first since the Fed surprised the market with a 50 basis point rate cut last Wednesday night. The following day, both the Bank of England and the ECB left rates unchanged for a 12th month. //www.fxcentre.com