ECONOMY: Recent evidence "increasingly suggests that an economic expansion [in the US\] is already well under way", Mr Alan Greenspan said yesterday in the US Federal Reserve's most explicit statement that the recession, which officially began 12 months ago, might be over.
Investors regarded the Fed chairman's remarks as signalling a possible revival of inflation jitters at the central bank and, therefore, the prospects of a rise in short-term interest rates. Bond yields jumped and interest-rate futures plunged.
But a separate report from the Labor Department showed rapid growth in US productivity in the fourth quarter of 2001, the fastest growth in measured US productivity since the second quarter of 2000, casting doubt about those interest rate expectations.
In his testimony to the Senate banking committee, Mr Greenspan suggested the September 11th terror attacks drove the US into recession. It was "far from obvious" that the economic weakness preceding the attacks was "becoming self-reinforcing", he said. "Indeed, immediately prior to September 11th, some sectors exhibited tentative signs of stabilisation."
Mr Greenspan lauded the economy's "recuperative" powers but warned that the apparent recovery would be short-lived without persistent growth in spending on goods and services. "We have seen encouraging signs. . . although the dimensions of the pick-up remain uncertain," he said.
H also criticised the decision of US President George W Bush to impose tariffs on steel imports.
"I understand the difficulties any president has in trying to come to grips with our trade laws and conditions such as exist in our steel industry," he said. "I happen not to agree with the particular judgment. But I recognise that it is a very, very tough judgment that the President had to make."
He noted that the US had benefited "more than anybody" from international free trade system.
On the broader economic front, Mr Greenspan said a long-term risk facing the US had emerged from its change from a "goods-based" to a "concept-based" economy. He warned that the growing importance to the economy of intangibles such as human capital and reputation, as opposed to physical assets such as factories and trucks, had made US asset prices more susceptible to Enron-like "contagions" and the loss of investor confidence.
Fed funds futures dropped on Mr Greenspan's testimony, reflecting expectations that the Fed would raise short-term interest rates by more than a percentage point this year to stem inflation risks.
Mr Greenspan's testimony came as the House of Representatives passed its fourth attempt at an economic stimulus package, returning the bill to the Senate where divided political loyalties have sunk previous tries at jumpstarting the economy.
Representatives approved the measure in a bipartisan 417-3 vote, after the bill was stripped of contentious accelerated income tax breaks and corporate tax incentives.
The bill is estimated to cost $42 billion over the next 10 years.
