The US economy may not yet be out of the woods, Federal Reserve Chairman Alan Greenspan said on Tuesday, leaving the door ajar for further interest rate cuts by the central bank.
But under questioning by members of the Senate Banking Committee, the powerful Fed chief sounded a more upbeat note, saying consumers were still confident about the economy. He also said falling energy prices were boosting corporate profits and putting more spending money into consumers' pockets.
"The fabric of consumer confidence has not been breached," Greenspan said. The chairman and other Fed officials keep a close eye on confidence as consumer spending accounts for two-thirds of US economic activity.
In testimony that mirrored his formal remarks to a House panel last week, Greenspan noted economic data had turned from "persistently negative to more mixed" -- a positive development -- but warned there were still risks to the US economy.
"The period of sub-par economic performance ? is not yet over, and we are not free of the risk that economic weakness will be greater than currently anticipated, and require further policy response," the Fed chief said in his testimony.
"That weakness could arise from softer demand abroad as well as from domestic developments," he said. "But we need also to be aware that our front-loaded policy actions this year coupled with the tax cuts under way should be increasingly affecting economic activity as the year progresses."
In the question-and-answer period, Greenspan noted that the risks to the US economy "have changed" since the Fed began cutting interest rates in January.
Stock prices fell on Tuesday but investors were more focused on gloomy earnings reports and announcements of more layoffs at US corporations than the Fed chief comments.
Treasury prices, meanwhile, were steady as the testimony kept alive hopes for another rate cut next month.
Analysts said they were disappointed the senators did not ask the Fed chairman more direct questions about the state of the US economy instead of focusing on issues like the minimum wage, affordable housing and predatory lending.
"The two questions we're all looking for the answer to are when the recovery is going to kick in and when the rate cuts are going to kick in and no one asked," Brown Brothers Harriman senior economist Lara Rhame said.
The Fed is widely expected to cut interest rates for the seventh time this year at its next policy making meeting on Aug. 21 in an effort to boost the flagging US economy.
The economy grew at a mere 1.2 percent annual rate in the first three months of the year. That was an improvement from the 1.0 percent measured at the end of 2000 but about a third of the pace that most policymakers see as the economy's potential to expand without sparking inflation.
A report on second-quarter growth comes out tomorrow. Economists polled by Reuters on average estimate the economy grew at a 0.9 percent annual rate in the three months ending in June, perhaps marking the lowest level of growth for the year.
Despite maintaining his warnings about downside risks to the economy, Greenspan assured senators that the Fed's interest rate actions in 2001 will come to the economy's aid.
"At the end of the day, it does seem to be effective," he saizd of monetary policy.
Some analysts have questioned recently whether rate changes are packing the same punch today they have in the past.
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