Associated Press
WASHINGTON — Federal Reserve chairman Alan Greenspan said Thursday the already weak economy took a significant blow from the worst terrorist attacks in U.S. history. But he cautioned Congress against rushing to enact a major stimulus program that could do more harm than good.
"While there is obviously a strong desire to move rapidly, it is far more important to be right than quick," Greenspan said in his first public comments on the economic impacts of the worst terrorist attack in U.S. history.
Greenspan said he was concerned that new tax cuts or increased spending could actually hurt the economy if financial markets pushed interest rates higher over worries the government was returning to big budget deficits.
Greenspan, Treasury Secretary Paul O’Neill and Securities and Exchange Commission chairman Harvey Pitt appeared Thursday before the Senate Banking Committee. They tried to instill confidence that the government would do what it could to cushion the economic fallout from last week’s attacks.
Wall Street investors failed to find much comfort in the words of assurance. The Dow Jones industrial average lost an additional 382.92 points Thursday. Losses since the market reopened Monday total 1,229 points, or nearly 13 percent.
Greenspan spoke of significant damage in the short term. He cited air travel disruptions and apprehension by consumers and businesses about major new purchases.
"The shock of September 11, by markedly raising the degree of uncertainty about the future, has the potential to result, for a time, in a pronounced disengagement from future commitments," Greenspan said.
He referred to the country’s ability to rebound from natural disasters, and said, "I am confident that we will recover and prosper as we have in the past."
The outlook among private economists, however, has turned decidedly more pessimistic. Blue Chip Economic Indicators said Thursday a survey found that 82 percent of economists questioned indicated they now believed the country was in a recession, compared with 13 percent before the attacks.
"The big impact that economists fear will be on consumer spending, which had been the only thing keeping us out of a recession," said Blue Chip editor Randell Moore.
Greenspan did not indicate what the Fed would do with interest rates. Most private economists believe the central bank, which cut rates for an eighth time this year on Monday, will continue lowering the short-term rates the Fed controls until there are signs of an economic rebound.
Greenspan said he was giving the Senate committee the same advice he gave House and Senate leaders in private on Wednesday: go slow on stimulus packages.
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