In his first public analysis of the US economy since October, US Federal Reserve Chairman Mr Alan Greenspan last night sought to dampen Wall Street's expectations of an imminent economic recovery, and hinted that his year-long campaign of short-term interest rate cuts had yet to run its course.From Conor O'Clery, International Business Editor, on Wall Street
The world's biggest economy still faced "significant" short-term risks - including the unforeseen consequences of another terrorist attack on the United States - despite some signs of improvement recently, Mr Greenspan told a group of corporate executives in a much-anticipated speech in San Francisco.
"There are sound reasons for concluding that the long-run picture remains bright, and even recent signals about the current course of the economy have turned from unremittingly negative through the late Fall of last year to a far more mixed set of signals recently," Mr Greenspan said.
The data at his command suggested only that the outlook for the economy had turned from "unremittingly negative" to "far more mixed", he went on in a speech whose tone ran counter to the upbeat predictions of American economists and analysts who generally forecast in recent surveys a return to growth in the next three months.
The prospect of another rate cut pulled share prices on Wall Street back from their lows of the day, during which the Dow Jones Industrial Index dipped below the psychologically important 10,000 mark for the first time this year.
The Fed cut rates 11 times in 2001 as the economy slipped into recession. "Despite a number of encouraging signs of stabilisation, 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," Mr Greenspan said. "For that to happen, sustained growth of final demand must kick in before the positive effects of the swing from inventory liquidation to accumulation dissipate."
On the positive side, "our economy has not been weakening cumulatively in recent weeks", he said. Mr Greenspan noted that inventories remained high and profit margins under pressure, adding: "The broad contours of the present cycle have been, and will continue to be, driven by the evolution of corporate profits and capital investment."