Uncertainty about a possible war with Iraq is making diagnosis of the US economy's health so tough it would be best to hold off on fresh stimulus for now, Federal Reserve Chairman Alan Greenspan said today.
In testimony before the Senate Banking Committee that economists and Democrats called a blow to the Bush administration's plans for a $695 billion package of tax cuts, Mr Greenspan pressed for a quick return of budget discipline.
However, the Fed chief repeated his longstanding support for the plan's core provision, the elimination of double taxation of dividends.
He stressed that spending and deficit control were vital, and suggested that if "uncertainties" stemming from the Iraq situation are short-lived, the economy may well be poised to grow on its own without big tax cuts.
"Unless and until we can make a judgement as to whether there is underlying deterioration going on - and my own judgement is I suspect not - then stimulus is actually premature," Mr Greenspan said in response to questions.
He said that because the uncertainty could be resolved within the foreseeable future, it would be "more sensible" to wait before launching programmes "which may in fact, from a stimulus point of view, not be necessary."
Presidential spokesman Mr Ari Fleischer defended the administration's stimulus plan and played down suggestions that Greenspan did not fully back them.
"You're watching the very beginning of the process ... and in the end, the President believes that he will get much, if not all, of what he has asked Congress to pass," he said.
Stock prices sank in late afternoon trading as markets fretted about the Fed chief's economic caution and a new audiotape believed to be from Osama bin Laden that urged Muslim solidarity with Iraq and reignited war fears.