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US Fed Chairman: Monetary Policy Still Effective in Promoting Growth
US Federal Reserve Chairman Alan Greenspan on Tuesday insisted that the monetary policy is still effective in staving off recession and promoting growth, and hinted that the central bank may further cut interest rates if the flagging economy doesn't improve.
"The complexity of our economy is such ... that you essentially get very complex differences in the way monetary policy plays out, but at the end of the day it does seem to be effective," Greenspan told the Senate Banking Committee.
Seeking to avert the first recession in 11 years, the Fed has cut interest rates six times this year, totaling 2.75 percentage points. It has been the most aggressive credit-easing campaign in nearly two decades.
The Fed meets next on August 21 and many economists believe policy-makers will cut rates for a seventh time, probably by a more conservative quarter-point.
In a prepared testimony that mirrored formal remarks he gave to a House panel last week, Greenspan noted economic indicators had turned from "persistently negative to more mixed" -- a positive development -- but warned there were still considerable risks to the U.S. economy.
"The period of sub-par 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," Greenspan said.
But the Fed chief again expressed the hope that the Fed's actions, falling energy costs and the government's tax cuts will bolster an economy stuck in low gear for a year.
"But we need also to be aware that our front-loaded policy actions this year coupled with the tax cuts under way should be increasingly affecting economic activity as the year progresses," he said.
Addressing financial upheaval in Argentina and other countries, Greenspan said "the tinder out there is much less" than in the global financial crises that started in 1997 and eventually led the Fed to slash interest rates.
"The problems that we have seen are in one sense, more domestic than they are international," he said.
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