November 14, 2002	Thursday	Ramazan 8, 1423

WASHINGTON, Nov 13: Federal Reserve Chairman Alan Greenspan said on Wednesday the US economy was weighed down by worry over possible war and falling stock prices but not by dangerous imbalances that tended to herald recession.

In testimony before Congress’s Joint Economic Committee, Greenspan said last week’s sharp interest rate cut should help the country through its “soft patch,” adding that if the recovery unfolds as he expects, no more stimulus was needed.

“It is the case that while the economy is softening or stagnant, there is no evidence...at least up to the moment, that it is accelerating on the downside,” Greenspan said during questioning by lawmakers. “What we do have is a very large degree of uncertainty.”

He added: “So if I were to assume that the outlook is exactly what the most probable path is, then I would say no additional stimulus is necessary.”

The venerable Fed chief’s testimony coupled an explanation of the US central bank’s unexpectedly steep rate cut, the first in 2002 and the 12th since last year, with an assurance that the latest policy action should offer a needed boost.

“Although economic growth was relatively well-maintained over the last year, several forces have continued to weigh on the economy,” Greenspan said. He cited a slow recovery in capital spending, fallout from corporate scandals, sliding stock markets and fears about a possible US attack on Iraq.

“Over the last few months, these forces have taken their toll on activity, and evidence has accumulated that the economy has hit a soft patch,” he added.

In later questioning, the Fed chief attempted to buttress the idea that the weakness was temporary and to downplay concern it could lead United States to a situation like that faced by Japan, in which deflation — or a widespread fall in prices — drags the economy into a prolonged decline.

Clearly seeking to reassure that risks of renewed recession were low, Greenspan said: “We don’t have the usual weaknesses that presage an economy going down in a cumulative manner.”

The Fed’s half-point cut on Nov. 6 brought the trendsetting federal funds rate to a fresh four-decade low of 1.25 per cent. Greenspan said the unexpectedly large rate slash was affordable “insurance” against a steeper downturn and noted it could be reversed quickly if growth picks up as expected.

While consumers were becoming more cautious, Greenspan said he did not foresee a sharp slump in spending, an economic mainstay through last year’s recession and the uneven recovery this year. He did say a recent drop in car sales bore close watching to determine if it was a pullback from earlier strength or marked a real decline in demand.

Several lawmakers pushed the Fed chief for comment on the Bush administration’s huge tax cuts last year, but he sidestepped efforts to draw him into debate on the subject.—Reuters