Federal Reserve Chairman Alan Greenspan gave Congress a more optimistic appraisal of the U.S. economy today (March 7) than he did a week ago, saying recent data indicate the first recession in a decade is already over, according to CNN.COM.
“The recent evidence increasingly suggests that an economic expansion is already well under way, although an array of influences unique to this business cycle seems likely to moderate its speed,” Greenspan said in his remarks prepared for delivery to the Senate Committee on Banking, Housing and Urban Affairs.
In that regard, his testimony was different from what he told the House Committee on Financial Services on Feb. 27, when he said only that he saw “firming” in economic activity and that the recovery would be slowed down by a number of headwinds.
But in the days since that testimony, a slew of data showing expansion in the long-suffering manufacturing sector, a stabilization of the labor market, surprising strength in fourth-quarter gross domestic product (GDP) and more have convinced many economists — and, apparently, Greenspan — that the recovery has already started.
But Greenspan also maintained that the Fed still saw challenges to the rebound, and he maintained the Fed’s earlier forecast of modest economic growth in 2002 of between 2.5% and 3%.
“Certain factors, such as the lack of pent-up demand in the consumer sector, significant levels of excess capacity in a number of industries, weakness and financial fragility in some key international trading partners and persistent caution in financial markets at home, seem likely to restrain the near-term performance of the economy,” he said.
In one positive note for the future of business spending — which economists think will be a key component of the economic recovery — Greenspan said he sees no evidence of a “credit crunch” for small businesses, and the availability of credit should improve after the economy does.
“The economy is turning, and credit comes in with a lag,” Greenspan said. “To the extent that a number of small firms are finding it difficult to get the credit they need at a price they can afford, that’s likely to change for the better.”
Many business leaders blame the Fed’s interest-rate increases in 1999 for bringing a halt to business spending and popping the late-90s Nasdaq stock bubble. In response to a lawmaker’s question, Greenspan refuted this criticism.
“I don’t think we did pop the bubble. We did raise interest rates in 1999, and the reason we did that is that real long-term rates were beginning to rise because the economy was beginning to accelerate,” Greenspan said.