BBC Friday, 25 May, 2001, 01:06 GMT 02:06 UK

Danger ahead warns Greenspan

Alan Greenspan: It ain't over til it's over

US Federal Reserve chairman Alan Greenspan has warned that the US still faces the threat of recession.

In his first public speech on the economy for three months, he warned of "considerable uncertainties" ahead and said the current period of slow growth has not yet ended and business activity could weaken further.

However, Mr Greenspan told the Economic Club of New York that an absence of inflationary pressures left the central bank with plenty of room to cut interest rates further if needed.

The Fed has already implemented five 0.5% rate cuts this year in the hope of stimulating economic growth.

US interest rates now stand at 4%.

Mixed picture

Mr Greenspan said: "The period of sub-par economic growth is not yet over, and we are not free of the risk that economic weakness will be greater than currently anticipated, requiring further policy response."

Mr Greenspan last spoke publicly on the economy in mid-February when he told the US Congress in his twice-yearly testimony on monetary policy that the economy was not in recession but a bumpy road lay ahead.

Since then, economic indicators have provided a mixed picture, with unemployment rising and industrial production falling but retail sales picking up.

The Fed's rate-setting body is next due to meet on 26-27 June, with analysts currently divided on whether rates will be trimmed again.

Production curbed

Mr Greenspan's speech stood in contrast to speeches by other Fed officials this week, which had generally struck a more optimistic tone about the prospects of a rebound.

On Tuesday, two other Fed officials, Anthony Santomero, head of the Fed's Philadelphia regional bank, and Gary Stern, president of the Minneapolis Fed branch, had both predicted a return to healthy growth of about 3-4%, with Mr Stern saying he was looking for a "significant" improvement in the second half of this year.

However, Mr Greenspan chose to emphasize the number of threats still facing the economy.

Rising unemployment

He said that businesses were continuing their efforts to curb production to get rid of an excess of unsold goods.

Higher energy prices also are likely to "weigh on the economy" in the short run, putting a squeeze on corporate profits, Mr Greenspan said.

And he raised concerns about how well the consumer - the main force propping up the economy - will hold up in the face of a prolonged period of weaker growth and rising unemployment.

He said eventually businesses will be able to get their stockpiles better in line with demand and will begin placing new orders.

However, he said, there remained "considerable uncertainties" about when this will occur and how strong the rebound in orders and production will be.

-- Anonymous, May 24, 2001