Greenspan to flag reasons for cheer

FEDERAL Reserve chairman Alan Greenspan testifies before the US Congress today, just three weeks after chopping interest rates for what may be the last time in a two-year easing cycle.

Greenspan's comments will be closely monitored by global investors who want to know whether he foresees a rebound in economic growth in the latter half of the year that would spell the end of monetary easing for the time being.

Most economists predict Federal Reserve policy will be to hold rates for the foreseeable future although a few believe Greenspan may telegraph another cut in August if the economy does not show certain signs of life by then.

He was today expected to highlight reasons for optimism but to avoid outwardly bullish predictions. Wall Street has staged a post-Iraq war rally on the belief the economy is poised to rebound.

Greenspan's words are likely to be carefully calibrated to support steady improvement in the stock market, which adds to family wealth, without raising the prospect of such strong growth as to encourage a stock market bubble or push interest rates substantially higher.

The Fed needs rates to stay low until the economy gains enough traction. Yields on 10-year government notes have already backed up half a percentage point since the Fed last dropped its benchmark federal funds rate by a quarter-point to a 45-year low of 1% last month.

'He isn't going to swear on the Bible that the economy is getting better because there are still areas of weakness holding back growth,' says DRI economist Cynthia Latta.

'There are few signs that things are getting better but inflation is so low and slowing as to be possibly worrisome. I'd be very surprised if he is anything but cautiously optimistic.'

Consumer spending has kept the economy from stalling in recent months but business spending remains weak, unemployment is stubbornly high and the industrial sector is in the midst of a slump.