The head of the U.S. central bank, Alan Greenspan, Wednesday professed optimism about a rebound in business activity even though he acknowledged that the economy has hit what he called a soft patch. Mr. Greenspan spoke to the congressional joint economic committee.
Mr. Greenspan says the economy has proven remarkably resilient after the terrorist attacks of September 11, 2001. For the past four quarters, he said, growth has been at a three percent annual rate. But worried that the prospect of war and higher oil prices had slowed the economy, the central bank last week cut short term interest rates by another one-half percent, bringing them to a 40-year low.
Mr. Greenspan said the economy endured not only the terrorist shock but also the steep drop in stock prices that cost investors millions of dollars. He believes that recent Enron and WorldCom scandals have led to necessary reforms in corporate governance that should restore investor confidence.
"As the stock market came down and the bubble burst, and as I put it, the infectious greed disappeared because there was nothing to be greedy about, everything changed," said Mr. Greenspan. "I think we have gone through very significant improvements in corporate accounting. ... None of the activities which if I may say so, were so disgraceful are going on today."
Congress last month approved reform measures requiring that chief executives take personal responsibility for the accuracy of their corporate financial statements.
Mr. Greenspan sees little immediate threat of either inflation or deflation. He said productivity gains are still continuing and that consumers continue to reap benefits from rising home prices. He said the economy currently does not need further fiscal stimulus from either more tax cuts or increases in government spending.