Greenspan Says More Spending and Hiring Will Help Economy

Articles: Greenspan Says More Spending and Hiring Will Help Economy

Posted by admin on Thursday, July 22, 2004 - 01:18 AM

The economy will benefit next year if businesses shed their unusual reluctance to spend and hire, Alan Greenspan, the chairman of the Federal Reserve, told Congress on Wednesday.
In a second day of testimony on the central bank's semiannual report on monetary policy, Mr. Greenspan told the House Committee on Financial Services that even with the recovery gaining pace, corporate America has held back from new capital investments, inventory building and permanent hires. "We are far from behaving the way we typically did" with other expansions, Mr. Greenspan said in answering questions from the panel. He attributed the corporate restraint to a number of "caution-creating factors." He cited the bursting of the stock market bubble in 2000, a spate of corporate scandals and latent fears of terrorist attacks as factors that had made businesses less willing to take risks. In his opening remarks, Mr. Greenspan stuck to the upbeat script he used Tuesday before the Senate Banking Committee, which led markets to brace for a slightly faster increase in interest rates than they had been expecting. United States bond prices extended Tuesday's losses on Wednesday. Stock prices, which rose on Tuesday, slipped on corporate profit concerns. Lawmakers from both parties did their best to draw Mr. Greenspan into an election-year debate over fiscal policy, with limited success. Mr. Greenspan said the sizable tax cuts President Bush pushed through Congress provided a welcome economic stimulus, but he offered a warning on the long-term budget outlook. "I think the tax cuts were effective in stemming the extent of decline in the weakness of the economy," he said. "Looking forward, fiscal policy is going to become a very critical issue on the agenda for macroeconomic policy. "I would prefer lower spending and lower taxes and lower deficits," Mr. Greenspan said. He renewed a call for restoration of budget discipline rules, including spending caps and requirements that new expenditures or tax cuts be offset elsewhere in the budget. The Bush administration wants those rules to apply only to new spending, not tax cuts. Mr. Greenspan also said Congress should find ways to rein in programs or tax cuts that prove more costly than expected. As he did on Tuesday, Mr. Greenspan said the economy was in a self-sustaining expansion that no longer needed the strong monetary stimulus the Fed provided with 13 interest-rate cuts dating to 2001. The Fed began withdrawing that stimulus last month, when it raised the overnight federal funds rate to 1.25 percent from 1 percent, the lowest since 1958. More measured increases are expected to follow. Other Fed officials who spoke Wednesday echoed Mr. Greenspan's tone. The Fed's vice chairman, Roger W. Ferguson Jr., said the recovery appeared "firmly on track." Anthony M. Santomero, president of the Philadelphia Federal Reserve Bank, said a recent soft patch did not reflect "a significant change for the broad outlook."

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