Greenspan Says US Economy Facing Risk of Further Weakness

US Federal Reserve Chairman Alan Greenspan on Wednesday said that the US economy still is facing the risk of further weakness and may need more policy actions to stimulate the growth.

In a testimony before the House Committee of Financial Services, Greenspan said that "the period of subpar 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."

The US economy began slowdown since the second half of last year and grew by only 1.2 percent in the first quarter of this year. Many economists expect the economic growth to slow to 0.5 percent in the second quarter.

Seeking to stave off recession, the Federal Reserve has slashed interest rates six times this year, totaling 2.75 percentage points, driving the borrowing costs to the lowest point in more than seven years.

Still, "Uncertainties surrounding the current economic situation are considerable," Greenspan said. "The risks would seem to remain mostly tilted toward weakness in the economy."

Much of the economic weakness comes from businesses rapidly and sharply cutting back on production in the face of sagging demand. Companies have laid off workers, trimmed hours and deeply discounted merchandise to work off excess inventories.

Economic upheaval in other countries, coupled with rising energy prices last year into this year, intensified the slowdown and drained businesses' and consumers' purchasing power, Greenspan said.

However, Greenspan expressed hope that the Fed's rate reductions along with falling energy costs and soon-to-be mailed tax-rebate checks will bolster economic growth in the coming months.

"By aggressively easing the stance of monetary policy, the Federal Reserve has moved to support demand, and, we trust, help lay the groundwork for the economy to achieve maximum sustainable growth," he said.

In its semi-annual report to Congress, the Federal Reserve downgraded the outlook for U.S. economic growth this year to between 1.25 and two percent, from two to 2.5 percent in February. But the report said growth is likely to pick up later this year and should be between three and 3.25 percent in 2002.

The report said inflation is likely to be at 2 to 2.5 percent in 2001, and 1.75 to 2.5 percent next year. It forecast the jobless rate to increase to between 4.75 percent and 5 percent this year, and possibly as high as 5.25 percent in 2002.






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