Financial markets eager to hear what Greenspan will say about the economy

Posted 10:00AM on Friday 11th January 2002 ( 22 years ago )

WASHINGTON - The Federal Reserve demonstrated its worries about the U.S. economy in dramatic fashion last year by undertaking its most aggressive credit easing in nearly two decades. But some central bank officials have sounded a more upbeat tone in recent days, leading to speculation that the Fed's 11th rate cut on Dec. 11 may well be the last. Much more about the Fed's views on the economy was expected to be revealed later Friday when Chairman Alan Greenspan was scheduled to deliver a speech on current economic conditions to a business audience in San Francisco. Financial markets were eagerly awaiting that speech for any light Greenspan is willing to shed on when the economy, now in its first recession in a decade, will pull out of its nosedive and begin growing again. In advance of Greenspan's remarks, a number of other Fed officials this week have expressed views indicating they believe a recovery is about to start. Anthony Santomero, the president of the Fed's Philadelphia regional bank, told an audience of economists in Washington on Thursday that one reason he was optimistic was the significant $1.35 trillion, 10-year tax cut that Congress passed last spring. "One of the reasons I and others have indicated a recovery is well in train in 2002 is because of the fiscal expansion that Congress has put in place," Santomero said. In an appearance Monday, Atlanta Fed President Jack Guynn cited several positive forces that will help to bring on a recovery, including lower energy prices and the Fed's previous cuts in interest rates. He predicted growth in the second half of this year at around 3 percent. And speaking to reporters this week in Europe, New York Fed President William McDonough noted that economic reports currently have been mixed, which he said was "typical when you're getting near to the bottom, or at the bottom" of a recession. The Fed cut rates 11 times in 2001, pushing the federal funds rate, the interest that banks charge each other, to a four-decade low of 1.75 percent. However, the last cut on Dec. 11 was just a quarter-point move, not the half-point moves the Fed had been employing since the Sept. 11 terrorist attacks. That switch to the smaller quarter-point reduction was seen by many analysts as an advance signal the central bank is coming to the end of its rate cuts. Economists currently are split with some thinking the Fed will cut rates by one final quarter point at its next meetings on Jan. 29-30 as an insurance policy. Others believe the Fed plans to signal even before that meeting that it believes it has done enough to ensure a recovery will get started, either this quarter or by late spring. On Thursday, Greenspan used an appearance before an economic development conference in Oakland, Calif., to urge financial institutions to do more to make sure they are not discriminating in their lending practices to minority groups. Greenspan said that minority groups had made progress in increasing their home ownership rates and the percentage of businesses that they control. But he said more needs to be done for the benefit of the economy as a whole.

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