Wednesday, June 4, 2003

Fed chief likes outlook

The Associated Press

BERLIN - U.S. Federal Reserve chief Alan Greenspan said Tuesday he sees indications of a "fairly marked turnaround" in the U.S. economy, with May data suggesting it has stabilized.

"The acceleration has not yet begun," Greenspan told a conference of top central bankers in Berlin, but he went on to note that recovering stock markets and other indications "are suggestive of a fairly marked turnaround."

Recent productivity gains and the impact of a U.S. tax cut taking effect July 1 will likely boost consumer spending and feed into the job market, while years of deregulation and investment in information technology had given the U.S. economy great resilience and flexibility, Greenspan said. But he also injected some caution.

"We are stabilizing, and there is some indication of return, but it's not at this stage by any means clear," he said, addressing the conference via audio link.

"At this particular stage, with flexibility still increasing, I expect the growth rate to quicken in the United States. Maybe not as rapidly as some of the forecasts for the third quarter imply, but ... everything seems to be in place."

Despite voicing reservations about using fiscal policy to steer the economy, he said that "fortuitously, this particular cut in taxes is happening at the right time."

Greenspan renewed his previous assessment that deflation is a remote threat.

Earlier, the head of the European Central Bank - speaking two days before a decision on whether to cut interest rates - said Europe's economic growth remained weak in the first half of the year and forecast that inflation will stay subdued in the next few months.

But ECB president Wim Duisenberg also suggested that the low cost of borrowing is helping European companies recover and predicted improved growth for the second half of the year.

The ECB is widely expected to cut interest rates by as much as half a percentage point Thursday to spur growth in Europe, though Duisenberg gave no clear signal in his conference remarks.

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