Greenspan hedges on timing of recovery

Associated Press

WASHINGTON — The economy, hit last year by recession and the worst terrorist attacks in U.S. history, appears to be stabilizing, but it is too early to declare recovery is at hand, Federal Reserve Chairman Alan Greenspan said Friday.

Greenspan, making his first extended comments about the economy since October, gave a mixed review of current conditions, noting some hopeful signs but also warning of "significant risks."

Financial markets, which had been looking for a more upbeat assessment from Greenspan about chances for a recovery, lost ground after the speech. The Dow Jones industrial average lost 80.33 points for the day to finish at 9,987.53.

In light of Greenspan’s continued concerns, private economists said it is now more likely that the Fed, which cut interest rates 11 times last year, will cut interest rates again when the central bank meets on Jan. 29-30.

"It is pretty much a fait accompli that we are going to get another cut in rates," said Sun Won Sohn, chief economist at Wells Fargo in Minneapolis.

In his address, delivered to a business audience in San Francisco, Greenspan noted a number of hopeful signs, including a sharp reduction by businesses in their inventories of unsold goods.

But he said there were also powerful forces that could derail any recovery, especially given that the economic weakness that began in the United States has now spread to the rest of the world.

"Despite a number of encouraging signs of stabilization, it is still premature to conclude that the forces restraining economic activity here and abroad have abated enough to allow a steady recovery to take hold," Greenspan said.

"I would emphasize that we continue to face significant risks in the near term," he said, citing such threats as weak corporate profits, the steep plunge in business investment and possible cutbacks in consumer spending due to rising unemployment.

"This is cautious optimism," said David Wyss, chief economist at Standard &Poor’s Co. in New York. "He believes the signs have turned from unrelentingly negative to more mixed. But he feels there are still a lot of risks out there."

The Fed’s string of rate cuts last year drove the federal funds rate, the interest that banks charge each other, down to a 40-year low of 1.75 percent.

However, the last rate cut on Dec. 11 was by only a quarter-point, not the bolder half-point moves the Fed had employed following the Sept. 11 attacks.

Analysts said that Greenspan’s worries about lingering threats to a recovery probably mean that the central bank will not rush to start raising rates later this year out of worries that the rebound will trigger inflation pressures.

"Greenspan wants to see real hard evidence that a recovery has begun before he switches out of his cautious interest-rate-cutting mode," said Ken Mayland, chief economist at ClearView Economics in Cleveland.

Greenspan said that the unemployment rate, which hit a six-year high of 5.8 percent in December, is likely to continue rising even after the recovery begins. Private economists are forecasting unemployment will hit a high of 7 percent by next summer. By comparison, the jobless rate in the last recession in 1990-91 topped out at 7.8 percent.

"If the tentative indications that the contraction phase of this business cycle is drawing to a close are ultimately confirmed, we will have experienced a relatively mild downturn," Greenspan said.

Copyright ©2002 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Melrose and Vine Collective owner Kara Langus in her vintage collection room at her store on Friday, Jan. 5, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
New and vintage women’s boutique aims to dazzle in downtown Everett

Add some sparkle to your wardrobe: Melrose and Vine Collective opened inside a former bank building on Pacific Avenue.

Garry Clark, CEO of Economic Alliance Snohomish County. (Kevin Clark / Herald file)
CEO steps down at Economic Alliance Snohomish County

Garry Clark, who has led the nonprofit chamber of commerce for three years, is leaving to “seek new opportunities.”

Dan Bates / The Herald
When Seattle Genetics founder, Clay Siegall lost his father while in college, he switched from studying for an MD to studying for a PhD., and a goal to treat cancer patients.  His efforts are paying off in lives.
Ex-Seagen CEO to return to Bothell to lead newly relocated biotech firm

Clay Siegall, who resigned from Seagen over allegations of domestic abuse, is now CEO of cancer therapy developer Immunome.

Molbak’s Garden Cafe in Woodinville, Washington. Photographed in 2016. (Andrea Brown / The Herald)
‘Shocked and heartbroken’: Woodinville garden store Molbak’s to close

After 67 years, Molbak’s Home + Garden, a mainstay just across the county line, will cease operations early next year.

Good Cheer’s two thrift stores are great places to find Christmas decorations and other knick-knacks. (File photo by David Welton)
A guide to gift buying on Whidbey Island

Consider these unique gift idea suggestions from the South Whidbey Record and the Whidbey News-Times

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.