Greenspan Says More Rate Cuts Possible

By BridgeNews The period of "sub-par" U.S. economic performance is not yet over, so the Federal Reserve may need to lower interest rates further if the economy proves weaker than anticipated, Fed Chairman Alan Greenspan said July 18. Greenspan, in prepared testimony to the House Financial Services Committee, said the Fed's interest rate cuts so far this year, combined with tax cuts and lower energy prices, should help spur demand in the economy. "But the uncertainties surrounding the current economic situation are considerable and until we see more concrete evidence that the adjustments of inventories and capital spending are well along, the risks would seem to remain mostly tilted toward economic weakness," he said. Greenspan's testimony accompanied the Fed's semiannual monetary policy report to Congress. In particular, there is a risk of weak consumer spending in the next few quarters and businesses probably will have to cut inventories of high-technology products substantially in the months ahead, he said. However, Greenspan did say that recent incoming economic data have "turned from persistently negative to more mixed." He also repeated that while the Fed may need to ease interest rates further, it also needs to be aware that the 2.75 percentage points in rate cuts it has implemented since January should increasingly boost the economy as the year unfolds. Tax cuts planned by the federal government should also help. "Certainly, should conditions warrant, we may need to ease further, but we must not lose sight of the prerequisite of longer-run price stability for realizing the economy's full growth potential over time," he said.

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