The U.S. central bank chief, Alan Greenspan, Tuesday said geopolitical uncertainty makes it very difficult to forecast economic activity. Mr. Greenspan appeared before the Senate Banking Committee.
The message of Mr. Greenspan's testimony before Congress is that the possibility of war in Iraq is weighing heavily on the economy. Once these tensions are resolved, he said, the U.S. economy should grow at much faster pace.
"If these uncertainties diminish considerably in the near term, we should be able to tell far better whether we are dealing with a business sector and economy poised to grow more rapidly our most probable expectation; or one that is still laboring under persisting strains and imbalances that have been misidentified as transitory," he said.
Despite current uncertainty, the Federal Reserve is holding to its forecast of three to three and three quarters percent growth this year. That would be a substantial improvement from the 2.4 percent growth of last year and virtually no growth in 2001. To pull the economy out of recession, the central bank aggressively cut interest rates in 2001 and again late last year. Short-term rates are at their lowest levels in 40 years.
Mr. Greenspan said the economy probably does not require further short-term stimulus in the form of more spending or tax cuts. He called attention to the budgetary impact of big tax cuts and warned lawmakers that they should hold down spending to keep an expanding budget deficit under control. He gave little hope that the nearly six percent unemployment rate will fall anytime soon.
