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Greenspan's Testimony To Joint Economic Committee

The Text Of Alan Greenspan's Prepared Testimony To Congress's Joint Economic Committee

Mr. Chairman and members of the Committee, I am pleased to present the Federal Reserve's semiannual Monetary Policy Report to the Congress.

When in late April I last reviewed the economic outlook before this Committee, full-scale military operations in Iraq had concluded, and there were signs that some of the impediments to brisker growth in economic activity in the months leading up to the conflict were beginning to lift.

Many, though by no means all, of the economic uncertainties stemming from the situation in Iraq had been resolved, and that reduction in uncertainty had left an imprint on a broad range of indicators.

Stock prices had risen, risk spreads on corporate bonds had narrowed, oil prices had dropped sharply, and measures of consumer sentiment appeared to be on the mend.

But, as I noted in April, hard data indicating that these favorable developments were quickening the pace of spending and production were not yet in evidence, and it was likely that the extent of the underlying vigor of the economy would become apparent only gradually.

In the months since, some of the residual war-related uncertainties have abated further and financial conditions have turned decidedly more accommodative, supported, in part, by the Federal Reserve's commitment to foster sustainable growth and to guard against a substantial further disinflation.

Yields across maturities and risk classes have posted marked declines, which together with improved profits boosted stock prices and household wealth.

If the past is any guide, these domestic financial developments, apart from the heavy dose of fiscal stimulus now in train, should bolster economic activity over coming quarters.

To be sure, industrial production does appear to have stabilized in recent weeks after months of declines.

Consumer spending has held up reasonably well, and activity in housing markets continues strong.

But incoming data on employment and aggregate output remain mixed.

A pervasive sense of caution reflecting, in part, the aftermath of corporate governance scandals appears to have left businesses focused on strengthening their balance sheets and, to date, reluctant to ramp up significantly their hiring and spending.

Continued global uncertainties and economic weakness abroad, particularly among some of our major trading partners, also have extended the ongoing softness in the demand for U.S. goods and services.

When the Federal Open Market Committee (FOMC) met last month, with the economy not yet showing convincing signs of a sustained pickup in growth, and against the backdrop of our concerns about the implications of a possible substantial decline in inflation, we elected to ease policy another quarter-point.

The FOMC stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance.

In the judgment of the Committee, policy accommodation aimed at raising the growth of output, boosting the utilization of resources, and warding off unwelcome disinflation can be maintained for a considerable period without ultimately stoking inflationary pressures.


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