Greenspan: Weak Growth Is Still a Risk Factor for the Economy

Jul 18 2001

WASHINGTON, July 18 - The struggling U.S. econom faces a range of hurdles that could imperil a hoped-for reboun and force the Federal Reserve to cut interest rates further, Fe Chairman Alan Greenspan said on Wednesday.

But Greenspan told the House Financial Services Committe that six rate cuts the Fed already has done so far this year plus a tax cut and cheaper energy costs, should assist th economy as it tries to pull out of its slowdown later in 2001.

"The period of sub-par economic performance, however, is no yet over, and we are not yet free of the risk that economi weakness will be greater than currently anticipated, and requir further policy response," Greenspan said in remarks which sparke a rally in U.S. Treasury bond markets.

The central bank chief added that the weakness could come fro softer demand abroad or domestic events.

"But we need also to be aware that our front-loaded polic actions this year coupled with the tax cuts under way should b increasingly affecting economic activity as the year progresses," Greenspan said.

He said that despite the risks to the downside, Fe policymakers opted for a smaller quarter-point interest rate cu in June because rate cuts tend to operate with a lag and "wit our cumulative 2-3/4 percentage points of easing this year, w have moved a considerable distance in the direction of monetar stimulus."

He said that if conditions warrant, the Fed may need to eas further, but that it must not lose sight of its goal to maintai longer-run price stability.

The Fed chief indicated firmly that he did not see any threa from inflation.

"The lack of pricing power reported overwhelmingly b business people underscores the quiescence of inflationar pressures," Greenspan said.

Analysts said the remarks indicated there is a chance o another small interest rate cut from the Federal Open Marke Committee when it meets in August.

"There's nothing startling in the headlines. But his emphasi that there is no recovery, and comments on the slowing growt risk in the rest of the world is consistent with the idea tha another small rate cut in August is probably still on th boards," said David Roberts, senior international economist a Bank of America Securities in New York.