If that doesn't work? Who knows, perhaps the USGov might actually have to do something real about the economy...
Read about Greenspan's address to the USGov at the Financial Times website.
Read about Greenspan's second trip to visit with the USGov (scheduled to take place on July 16, 2003) over at Reuters.
From FT.com:
From Reuters:Greenspan warns about pervasive "caution"
By Alan Beattie and Peronet Despeignes in Washington
Published: July 15 2003 20:37 | Last Updated: July 15 2003 20:37
Alan Greenspan, chairman of the US Federal Reserve, warned on Tuesday that "a pervasive sense of caution" following America's rash of corporate scandals had held back investment and employment, but repeated the Fed's belief that the sputtering US economic recovery would gather momentum.
At his twice-yearly congressional testimony, Mr Greenspan said the US central bank would keep interest rates low for "as long as it takes" to spur growth and stop inflation falling. But he signalled it was highly unlikely that the Fed's open market committee would have to resort to unusual anti-deflation strategies such as buying Treasury bonds outright to pump more money into the economy.
"The FOMC stands ready to maintain a highly accommodative stance of policy for as long as it takes to achieve a return to satisfactory economic performance," he said.
Mr Greenspan's testimony sparked further sharp rises in long-term interest rates, as investors reduced their bets that the Fed would buy bonds. Yields on Treasury bonds rose to levels not seen since before the Fed's meeting in May, where it first said that worryingly low inflation was its main concern. Higher bond yields pushed the dollar up against the euro. But heeding Mr Greenspan's promise to give the economy time to grow and inflation to rise, markets continued to price in little chance of an increase in rates over the next year.
The Fed's rising optimism has been encouraged by some signs that the economy, which has been bumping along at 1-2 per cent growth, is gathering pace.
The Fed believes the recovery, backed by new tax cuts and more government spending coming on stream in the second half of the year, will gather speed. The central range of a set of Fed forecasts released Tuesday showed predicted gross domestic product growth at 2.25-3 per cent this year, implying a sharp pick-up from the anaemic growth in the first half of the year.
Figures released Tuesday showed retail sales in June growing at 0.5 per cent, the second fastest pace this year. Further evidence of the loose fiscal stance came as the White House forecast a record federal budget deficit of $455bn this fiscal year and $475bn next year, amid criticism from Democrats and concern among economists about profligacy with the public finances.
But Mr Greenspan's testimony, in which he was speaking on behalf of the FOMC, was one of the first collective admissions that the recovery was being held back by more than the temporary effects of the war with Iraq.
There were as yet only "tentative signs" that a pick-up in demand was encouraging companies to resume capital spending, which has been stagnant since the economy stopped contracting in 2001.
"As yet there is little evidence that the more accommodative financial environment has materially improved the willingness of top executives to increase capital investment," he said. "Corporate executives are seemingly unclear . . . about how an increase in risk-taking on their part would be viewed by shareholders and regulators." This concern was until recently a minority view within the Fed, held particularly by William McDonough, the former president of the New York Fed.
Mr Greenspan also said rising energy costs posed risks to the economy. Oil prices had risen as Iraq oil had taken longer to come on stream than predicted, and the rise in natural gas prices was "worrisome", he said.© Copyright The Financial Times Ltd 2003.
With Wall Street wary, Greenspan testifying again
Wed July 16, 2003 02:36 AM ET
By Caren Bohan
WASHINGTON, July 16 (Reuters) - Federal Reserve Chairman Alan Greenspan will get another try on Wednesday at impressing Wall Street when he goes to Capitol Hill for the second part of his closely watched testimony on the economy.
The Fed chairman will appear before the Senate Banking Committee at 10 a.m. (1400 GMT).
Appearing before the House of Representatives Financial Committee on Tuesday, Greenspan pledged to keep interest rates low for a while and predicted stronger economic growth.
The reaction in financial markets fell far short of applause.
Not only did Greenspan say it was unlikely he would raise rates any time soon but he held out the possibility the Fed might cut borrowing costs again if it becomes necessary to ward off the threat of deflation.
The Treasury market staged a huge sell-off. The 10-year bond's yield, which moves in the opposite direction to the price, posted the biggest one-day rise since October 1998.
Predictions from the White House of a record $455 billion budget deficit contributed to the rout in Treasuries.
Amid worries about the bond market's reaction and its implications for the cost of long-term credit, stocks sold off in tandem. The Dow Jones industrial average fell 48 points to 9,129. The tech-laced Nasdaq Composite lost 2 points to 1,753.
Greenspan's formal remarks to the Senate panel are expected to be identical to those he submitted to the House committee. He will get ample opportunity to elaborate on his views in the question-and-answer session.
Some bond traders were disappointed Greenspan seemed to eschew for now some unconventional measures the Fed has been mulling that could be used to combat deflation. For example, the U.S. central bank could consider intervening in the bond market to push down long-term rates.
Greenspan suggested those kinds of dramatic steps were not needed right now.
"Given the now highly stimulative stance of monetary and fiscal policy and well-anchored inflation expectations, the (Fed) concluded that economic fundamentals are such that situations requiring special policy actions are most unlikely to arise," Greenspan said.
"Furthermore, with the target funds rate at 1 percent, substantial further conventional easings could be implemented if the (Fed) judged such policy actions warranted," he said.
Overnight borrowing costs, the Fed's main tool for influencing the economy, now stand at 1 percent, a 45-year low.
Although Greenspan made reference to the possibility of additional cuts in short-term rates, many economists said they thought it was unlikely such reductions would come at the central bank's next meeting on Aug. 12.
One reason economists were doubtful of a near-term cut is that the Fed has offered a prediction of fairly robust growth for the economy through the second half of this year and into next year. Strong growth would weaken the argument for a cut.
"We believe that we're at a turning point (in the economy), and our best judgment is that things will be improving," Greenspan said.(c)2003 Reuters
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