- The Washington Times - Thursday, March 1, 2001

Federal Reserve Chairman Alan Greenspan yesterday showed more concern about the economy than he did two weeks ago but disappointed Wall Street by indicating that the Fed is not likely to cut interest rates in the next few days.
In testimony before the House Financial Services Committee, Mr. Greenspan said he is keeping a wary eye on the recent "steep falloff" of consumer confidence and described the economy as being in a period of "retrenchment" from "excesses" during 1999 and 2000 "that has yet to run its full course."
"For now, at least, the weakness in sales of motor vehicles and homes has been modest, suggesting that consumers have retained enough confidence to make longer-term commitments," he said, indicating that the Fed is inclined to wait until the March 20 meeting of its rate-cutting committee before moving on interest rates again.
Mr. Greenspan's comments dashed hopes in the troubled stock market that help was on the way as soon as this week. The Dow Jones Industrial Average swooned as much as 213 points in the wake of his speech but recovered some to end down 142 points at 10,495.
The Nasdaq Composite Index fell 2.5 percent, or 56 points, to 2,152. The "new economy" index has wiped out all its gains of the last two years. Analysts said the meteoric rise of the Nasdaq during 1999 and early 2000, when it reached a peak more than double what it is now, apparently was one of the "excesses" that Mr. Greenspan said must be wrung out of the economy.
"Investors are forewarned: The Federal Reserve is in the business of managing the economy, not the financial markets, and especially not the Nasdaq," said Richard Yamarone of Argus Research Co. in New York. "Don't stick around waiting for a Fed-tossed lifesaver every time the Nasdaq tumbles 100 points."
People should expect the Fed to cut rates in the future only when reports show profound weakness in the economy, particularly consumer spending, he said.
Mr. Greenspan said the only way to deal with sagging confidence is to tell the public the truth about the economy and hope they will see there is no reason to panic.
"The one thing I know you can't do is try to spin the economy one way or the other. It doesn't work," he said.
Because it is important for the public to get all the facts, Mr. Greenspan defended the Bush administration against Democratic criticism that it has been wrong to raise alarms about a possible recession.
Some committee Democrats suggested that Mr. Bush is talking down the economy as a cynical way of pushing through tax cuts. They suggested Mr. Bush's comments on the economy contributed to the fall in consumer confidence.
"The White House is playing, to some degree, with a very sharp instrument here," said Rep. Joseph Crowley, New York Democrat.
But Mr. Greenspan said the White House's gloomy assessment of the economy is sincere. Just before he spoke, the Commerce Department announced that the economy grew at an anemic 1.1 percent pace in the fourth quarter of 2000, the slowest rate in 5 and 1/2 years.
"I know the people in the White House who are talking, and I can tell you that that's their judgment… . It's not a view that materialized when the tax-cut issue came up," Mr. Greenspan said. "Each of us, I think, has got to tell it the way we see it."
Mr. Greenspan noted that Americans are exposed to a wide-ranging debate about the economy on television every day, hearing corporate executives who have far gloomier assessments of the economy than his or the White House's.
There is no evidence that the public ascribes more credibility to the White House or even the central bank than it does to these other commentators, he said.
"We have an open system in which economists all over the country in all industries are saying what they believe. I think that's exceptionally helpful," he said.
On another matter, Mr. Greenspan said the high natural-gas prices that shocked homeowners by doubling their heating bills this winter are a new problem that calls for more exploration and drilling in the United States beyond the "dramatic" increase in drilling already seen.
Crude-oil price spikes in the past were caused by OPEC and had effects on the economy that could be predicted, he said. But "the natural-gas surge that we have seen in the last year or two is something relatively new, and it's been caused by a very dramatic increase in the demand for natural gas," he said.
Energy specialists say the jump in demand has come mostly from power plants in California, which are fired by natural gas. They say demand will remain high for years to come because 95 percent of the power plants being built in the United States are to be fueled by natural gas, partly to comply with strict environmental rules.
"It clearly has macroeconomic effects," Mr. Greenspan said. "You could see the impact of these doubling of gas bills on consumer behavior and indeed on consumer confidence. So it's a new element in the economic outlook."

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