The Financial Magic Bus
Alan Greenspan, the chairman of the US central bank, has saidthat the US economic recovery is well under way. In his most optimisticstatement yet, the influential central banker told the Senate Finance Committeethat "recent evidence increasingly suggests that an economic expansionis already well under way".
It was a highly unusual revision of Mr Greenspan's testimony justone week ago to the House of Representatives where he sounded a more cautiousnote. Then, the US Federal Reserve chairman said merely that someof the forces that had been restraining the US
economy were "starting to diminish."
Normally Mr Greenspan makes the same assessment toboth Houses ofCongress in his semi-annual report on theUS economy.
Encouraging data
Since Mr Greenspan first spoke, some economic data has emerged tosuggest that the US economy had been growing much faster in the last threemonths of 2001 than
previously believed.
Factory orders have begun to pick up as inventories are liquidated,and durable goods orders have been strong. But new home sales fell sharply in January despite the
lower interest rates.
And consumer confidence fell unexpectedly this week, whileindustrial output continues to fall and unemployment is still rising.
Mr Greenspan on Thursday again warned that "an array of influencesunique to this business cycle, however, seems likely to moderatethe speed of the anticipated recovery."
"The dimensions of the pick-up remain uncertain," he said.
Rate cut caution
Mr Greenspan was guarded on the question of whether the Fed wouldbegin to raise rates again.
In 2001, the Fed cut interest rates 11 times to 1.75% in attemptto jump-start the economy before pausing in January.
Economists said that Mr Greenspan's remarks signalled that he wouldkeep rates unchanged. "The Fed will probably hold rates steadyat a low level as long as they can," said Gary Thayer, chief economistat AG Edwards & Sons
"As long as the unemployment rate is rising, they'll maintain a policybias toward weakness."
Stimulus doubts
The Fed chief's remarks came as the US House of Representatives passeda heavily diluted version of President George Bush's economic stimuluspackage, aimed at shoring up growth in the wake of the 11 Septemberattacks.
Mr Greespan on Thursday reiterated his view that the stimuluspackage is not essential to the US recovery.
"I doubt very much whether the economy, if it did not get a stimulus,would sag," he told the Senate Committee.
The final draft of the stimulus package, which comprises modest businesstax cuts and an extension of unemployment benefit payments, must now gainthe approval of the US
Senate.
Company spending the key
Mr Greenspan pointed out that the current recession was caused by"sharp cutbacks" in capital spending by companies, which "interacted withand were reinforced by
falling profits and equity prices."
And he said that any recovery in business capital spending was likelyto be gradual.
He warned that of the "Enron effect" which could make other "neweconomy" companies more susceptible to contagion.
But Mr Greenspan did not believe there was a systemic risk arisingfrom Enron, and he was generally optimistic about he "recuperative powersof the US economy" which he
said "had been remarkable." 
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