BBC Homepage World Service Education
BBC Homepagelow graphics version | feedback | help
BBC News Online
 You are in: Business
Front Page 
UK Politics 
Market Data 
Your Money 
Business Basics 
Talking Point 
In Depth 

The BBC's Patrick O'Connell in New York
"The obsession with the timing of the rate cut is unlikely to ebb"
 real 56k

The BBC's Andrew Walker
"Another cut in interest rates is widely expected in the US financial markets"
 real 28k

Wednesday, 28 February, 2001, 22:26 GMT
Fed: Slowdown not over yet
Fed chairman Alan Greenspan
Greenspan: No hints on timing of any new rate cut
The slowdown in the US economy has yet to run its full course, Federal Reserve chairman Alan Greenspan warned on Wednesday.

In prepared comments to the House Financial Services Committee, Mr Greenspan said the economy remained "on a path inconsistent with satisfactory economic performance" despite two interest rate cuts in January.

Analysts viewed his remarks as signalling that further interest rate cuts were on the way, although no details on the timing of any such move were given.

They said an emergency, unscheduled rate cut - expectations of which had driven stock markets higher in recent days - now looked unlikely in the near future.

Stock markets fall

US stock markets fell as investors discounted the possibility of any immediate rate move.

"He threw a big bucket of ice water on the stock market," said Lehman Brothers economist Ethan Harris.

The Dow Jones industrial average dropped 141.60, or 1.3%, to 10,495.28 after falling as much as 213 points in volatile trading.

The Nasdaq composite index fell 55.99 to 2,151.83, a 2.5% drop. The index remained at levels not seen since December 1998.

"The Fed is not ready to pull the trigger right away. But clearly the Fed is not done with easing just yet," Wells Capital Management senior economist Gary Schlossberg added.

So far this year, interest rates have been trimmed 1% in two cuts implemented on 3 and 31 January in an attempt to stimulate growth.

Analysts said the current rates of 5.5% were neutral and a cut of at least 0.5% could be expected following the Fed's next meeting on 20 March.

On the foreign exchange markets, the euro rose against the dollar as investors digested Mr Greenspan's comments.

At 2200 GMT, the euro traded at $0.9220 from $0.9176 a day earlier.

Limited retrenchment?

Mr Greenspan said the economy showed an "exceptional degree" of slowing late last year although this "seemed less evident" in January and February.

He said car and home sales had been only modestly weak, suggesting consumers retained enough confidence to make longer-term commitments.

As long as the factors contributing to long-term productivity growth remained intact, "retrenchment" in the economy would "presumably be limited", he said.

Most analysts viewed the remarks as slightly more upbeat than Mr Greenspan's Senate testimony two weeks ago.

"I think he gave a very balanced view of the economy. It's not really falling off a cliff, it's sliding," Credit Suisse Asset Management managing director Stanley Nabi said.

Quicker response

In a later question-and-answer session with lawmakers, Mr Greenspan said that buoyant stock markets had been a major factor behind economic growth in the last five years but it was too soon to say whether recent sharp falls could cause a recession.

"Whether it in and of itself is enough to actually induce a significant contraction which in retrospect we will call a recession is yet too early to make a judgement on," he said.

He also said new technology had enabled businesses to respond more rapidly to economic changes and Fed policy makers were moving faster as a result.

"Old economic policy must indeed adjust itself for the changing timeframe in which the economy itself is moving," he said.

Downwards GDP revision

Mr Greenspan's comments came as the Commerce Department revised downwards its estimate for US economic growth in the last three months of 2000.

It estimated year-on-year gross domestic product (GDP) growth at 1.1% for the quarter, down from an earlier estimate of 1.4%.

It was the weakest quarterly performance since the second quarter of 1995 but marginally better than many economists had expected.

The downwards revision reflected weaker imports and exports of goods and services and lower inventory investment, the Commerce Department said.

Search BBC News Online

Advanced search options
Launch console
View market data
Launch marketwatch
The Markets: 9:29 UK
FTSE 100 5760.40 -151.7
Dow Jones 11380.99 -119.7
Nasdaq 2243.78 -28.9
FTSE delayed by 15 mins, Dow and Nasdaq by 20 mins

Terror's impact

Signs of a slowdown

Rate cuts


Key players

See also:

28 Feb 01 | Americas
Bush pushes tax cuts
31 Jan 01 | Business
US interest rates cut to 5.5%
03 Jan 01 | Business Basics
Alan Greenspan: market mover
Internet links:

The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.

E-mail this story to a friend

Links to more Business stories