Greenspan Expresses Worries About Downside Risks in EconomyUS Federal Reserve Chairman Alan Greenspan said on Tuesday that the US economy faces a major slowdown and "downside risks" still predominate for the period ahead."The slowdown in the economy that began in the middle of 2000 intensified, perhaps even to the point of growth stalling out around the turn of the year," Greenspan said in testimony to the Senate Banking Committee. "As the economy slowed, equity prices fell, especially in the high-tech sector, where previous high valuations and optimistic forecasts were being reevaluated, resulting in significant losses for some investors," he said. Despite two consecutive quarters of decline, however, the chairman refused to predict whether or not the US economy would be see a recession because full-blown downturns are often the result of unreasonable fear that overwhelm normal business and consumer buying decisions. "This unpredictable rendering of confidence is one reason that recessions are so difficult to forecast," Greenspan said. "Our economic models have never been particularly successful in capturing a process driven in large part by nonrational behavior." While presenting a grave outlook for the US economy in the coming months, Greenspan also painted a favorable economic prospect as the year progresses. "Although the economy appears likely to be sluggish over the near term, the members of the Board of Governors and the Reserve Bank presidents expect stronger conditions to emerge as the year progresses," he said. He said that consumer confidence is still at a level which was historically compatible with economic growth. The recent decline in energy prices and further declines anticipated by futures markets should stimulate purchasing power and would be an " important factor" supporting a recovery in demand growth in the quarters ahead, he added. Greenspan also noted that inflation has remained low and that the Federal Reserve's two rapid-fire half-percentage point interest rate cuts in January had not put the low-inflation outlook at risk. He said that the US economy may come out of a period of " retrenchment" later this year and grow at a pace of 2 to 2.5 percent in 2001 due to improvements in technology and productivity. |
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