U.S. Central Bank Chairman Alan Greenspan Wednesday offered a mixed but ultimately positive assessment of the U.S. economy, suggesting that growth is likely to pick up in the months ahead. Mr. Greenspan appeared before the congressional Joint Economic Committee.
Mr. Greenspan said businesses remain reluctant to invest or hire new workers. However, he said the pace of growth may be quickening as the positive effects of a fall in energy prices and the end to the Iraq war take hold. The central bank, he said, needs further economic data to fully assess future prospects.
"The economy continues to be buffeted by strong cross-currents," he said. "Recent readings on production and employment have been on the weak side. But the economic fundamentals, including improved conditions in financial markets and the continued growth in productivity, augur well for the future."
The U.S. economy has been growing at under a two percent annual rate. Expectations are that growth will accelerate to a three to four percent pace in the second half of the year.
Mr. Greenspan acknowledged that there is a threat of a general decline in the price level known as deflation, a phenomenon that has kept Japan in or near recession for a decade. However, he said the threat of deflation in the United States is still minimal. "To recognize this not as an imminent threat to the United States, but a threat - even though minor - is sufficiently large that it does require very close scrutiny and maybe, maybe action on the part of the central bank," he said.
Mr. Greenspan said deflation is essentially caused by weak consumer demand. Despite 40-year low interest rates, he said the central bank still has the policy tools to further stimulate consumer demand.
The 77-year-old Mr. Greenspan declined to comment on the recent sharp declines in the value of the dollar, saying that was the job of Treasury Secretary John Snow.