Posted on 06/03/2003 11:07:03 AM PDT by MeekOneGOP
Greenspan: Signs of a 'fairly marked turnaround' in U.S. economy
06/03/2003
BERLIN - Federal Reserve chief Alan Greenspan said Tuesday he sees indications of a "fairly marked turnaround" in the U.S. economy.
Data for May suggest the economy has "stabilized," he told a conference of top central bankers in Berlin.
"The acceleration has not yet begun," he said, before noting that recovering stock markets and other indications "are suggestive of a fairly marked turnaround."
Recent productivity gains and the impact of tax cuts taking effect July 1 will likely boost consumer spending and feed into the job market, Greenspan said, though he also injected some caution into his remarks.
"We are stabilizing and there is some indication of return, but it's not at this stage by any means clear," said Greenspan, addressing the conference via audio link.
Greenspan renewed previous assessments that deflation is a remote threat.
"All in all, we're looking at a low-probability event," he said. "But if it happens, our concerns are such that it could be a significant event that would require insurance against."
Earlier, the head of the European Central Bank -- speaking two days before a decision on whether to cut interest rates -- said Europe's economic growth remained weak in the first half of the year and forecast that inflation will stay subdued in the next few months.
But ECB president Wim Duisenberg also suggested that the low cost of borrowing is already helping European companies recover and predicted improved growth for the second half of the year.
The ECB is widely expected to cut interest rates by as much as half a percentage point Thursday to spur growth in Europe, though Duisenberg gave no clear signal in his conference remarks.
The European central bank expects a "continuation of weak economic growth throughout the first half," Duisenberg said. "However, we expect some acceleration in economic activity in the second half of this year and thereafter."
The European Union's head office said last week that inflation fell to an annual rate of 1.9 percent in May in the 12 countries that use the shared euro currency. That's below the bank's 2 percent guideline for the first time since June 2002.
The inflation rate should hover near that level in the coming months and "fall more significantly in 2004," Duisenberg forecast.
Many economists expect the ECB's governing council to cut rates on Thursday by as much as a half-percentage point to spur growth in Europe.
The bank's main mission is fighting inflation, and it only cuts rates when it can say that prices are under control. While rate cuts can boost growth, they can also worsen inflation if carried out at the wrong time.
Duisenberg noted that the euro's recent sharp rise against the dollar has taken even more upward pressure off prices in Europe, since a stronger currency makes imported goods and raw materials cheaper.
The rising euro has also led to fears it will stall growth by making exporters' goods more expensive against foreign competitors, prompting calls from politicians and economists for a rate cut.
Yet Duisenberg described the appreciation as a "correction" and said "the competitive position of euro-area producers ... is now back in line with long-term averages."
The ECB leadership has kept the key refinancing rate at 2.5 percent since a quarter-point cut March 6 even as economists say the case for lower rates has become clearer and clearer.
The euro countries showed zero growth in the first quarter, and the International Monetary Fund has warned that Germany, the continent's biggest economy, is at risk of debilitating deflation -- a vicious circle of falling prices and growth.
Other bankers at the privately sponsored conference in a luxury hotel in Berlin were Bank of England head Sir Edward George, Bank of France governor Jean-Claude Trichet and Toshiro Muto, deputy governor of the Bank of Japan.
The conference came as leaders of industrialized nations sought to reassure financial markets that they were prepared to work together to revive global growth.
"Our economies face many challenges. However, major downside risks have receded and the conditions for a recovery are in place," a closing statement from the Group of Eight summit in Evian, France, said. "We are confident in the growth potential of our economies."
Recent productivity gains and the impact of tax cuts taking effect July 1 will likely boost consumer spending and feed into the job market , Greenspan said, though he also injected some caution into his remarks.
Yell it in the streets! Shout it from the rooftops!
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