Greenspan: Us 'emerging From Recession'

The US is emerging from recession but economic recovery is expected to be modest, the Federal Reserve Board chairman, Alan Greenspan, said today.

In his semi-annual testimony to Congress on the state of the economy, the world's most influential central banker said business and consumer confidence began to recover at the end of last year.

"The improved sentiment seemed to buffer the decline in economic activity," Mr Greenspan told the House financial services committee. "In the past several months, increasing signs have emerged that some of the forces that have been restraining the economy over the past year are starting to diminish and that activity is beginning to firm."

But Mr Greenspan predicted a moderate recovery. "An array of influences unique to this business cycle, however, seems likely to moderate the speed of the anticipated recovery," he said.

He listed the factors as a lack of pent up consumer demand, excess capacity in a number of industries, "weakness and financial fragility in some key international trading partners and persistent caution in US financial markets."

The US entered recession in March last year after 10 years of uninterrupted expansion. The bursting of the internet bubble spread to technology stocks and to the rest of the economy. Mr Greenspan said economic activity was beginning to pick up until the shock of the September 11 attacks on the US.

Mr Greenspan said the Fed expects the economy will grow by between 2.5% to 3% this year - about half the pace of the normal rebound from a recession.

Analysts read into Mr Greenspan's statements that the Fed will leave interest rates on hold when it next meets to discuss interest rate policy, as the economy is still fragile.

"The Fed will probably hold rates steady at a low level as long as they can," said Gary Thayer, chief economist of AG Edwards, a St Louis broker. "And I think as long as the unemployment rate is rising, they'll maintain a policy bias toward weakness."

The Fed's policy-making body, the federal open market committee, lowered interest rates 11 times last year from 6.5% to the current 1.75%, their lowest level for 40 years. The Fed held rates steady at its first meeting of 2002, held last month.

While generally optimistic in tone, Mr Greenspan cautioned that uncertainty about the US economy remains.

"The US economy has experienced a substantial shock, and no doubt we continue to face risks in the period ahead," Mr Greenspan said.

He added that the "the economic consequences of [the events of September 11] and their aftermath are an integral part of the many challenges that we now collectively face."