US Federal Reserve Chairman Mr Alan Greenspan, warning of "considerable uncertainties" in the US economic outlook, said the current period of slow growth had not yet ended and there was still a threat that business activity could weaken further.
While delivering a sober assessment of the dangers still facing the economy, Mr Greenspan signalled that an absence of inflationary pressures left the central bank with plenty of room to cut interest rates further if needed to guarantee that a sustained rebound will occur.
"The period of sub-par economic growth is not yet over, and we are not free of the risk that economic weakness will be greater than currently anticipated, requiring further policy response," Mr Greenspan said in a dinner speech to the Economic Club of New York yesterday.
Mr Greenspan did not use the word "recession" but his remarks signalled that a possible recession remained a threat to the economy.
Private economists said they viewed Mr Greenspan's remarks as a clear indication that the central bank was prepared to cut rates further, given the lingering weakness in the economy.
"Greenspan is right. We are not out of the woods yet concerning whether we will avoid a recession," said Mr David Wyss, chief economist at Standard & Poor's in New York.
He predicted that the Fed would cut rates by another half point when its policy-makers meet again on June 26-27.
The Fed has already cut interest rates five times this year in the most aggressive easing move ever carried out during Mr Greenspan's nearly 14 years as head of the central bank.
Those moves have reduced the federal funds rate, the interest that banks charge each other, by 2.5 percentage points, driving borrowing costs for millions of American consumers and businesses to the lowest level in seven years.
AP