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US Congress about to hear Fed's view

The US economy's vital signs are improving and when Alan Greenspan delivers his economic diagnosis before Congress this week, lawmakers are likely to press the Federal Reserve chairman to declare the recession dead.

Analysts predict the Fed chief will be characteristically cautious at Wednesday's appearance before the Financial Services Committee of the US House of Representatives, but will acknowledge his outlook has shifted.

"Fundamentally, he's going to have to address the issue of is the recession over," said Robert Dederick, economic consultant to Northern Trust Co in Chicago. "While he may not want to commit himself explicitly, he may at least repeat that we are in process of turning the corner."

Those were the words the Fed chief used in January when law-makers last asked him where the US economy stood.

Recent data show relatively robust consumer spending and rapid liquidation of overstocked inventories -- developments that argue for a stronger rebound from recession than expected.

Several Bush administration officials, including Treasury Secretary Paul O'Neill, have in the past couple of weeks said the economy is on the road to recovery. Now investors are focusing on the next big question.

"So now we're going to get to the question of how vigorous will be the recovery -- that really seems to be the big issue right now," Dederick said.

Greenspan's appearance will be the economic highlight of next week, the first leg of a two-step process in which he presents his semi-annual economic outlook to House and Senate lawmakers and submits to questioning.

The past six months have been tumultuous, punctuated by the Sept. 11 attacks against the World Trade Center and the Pentagon that shocked the economy into a virtual standstill for a week or more afterward.

Throughout last year, the Fed maintained an aggressive interest-rate cutting campaign that brought short term rates down in 11 stages to their lowest in 40 years.

The Fed funds rate stood at 1.75 percent by the end of the year and Fed policymakers kept it at that level at the conclusion of their last rate-setting session on Jan. 30.

Greenspan has begun slowly moving toward a more optimistic assessment of future prospects. In his most recent congressional testimony before the Senate Budget Committee last month, he dropped an earlier reference to "significant risks" and said the economy was starting to turn.

"We are just at this particular point turning, as best I can judge," Greenspan said then. Government data since have shown inventories were drawn down at a record pace in last year's final quarter and that factory orders have begun to pick up. Analysts say the Fed chief will keep his enthusiasm in check.

"I think he'll carry on with the same type of thing we heard in January -- that we've got firming economic conditions but continuing concerns regarding the sustainability of a recovery," said economist Gary Thayer of AG Edwards and Sons Inc in St. Louis, Missouri.

Most forecasters are calling for a relatively slow-paced recovery early in the year, gathering steam as the year wears on. If so, any signals Greenspan gives about interest rates are likely to hint of a period of stability rather than a swing toward rate rises since prices remain in check.

"His message will be more upbeat that it was at the start of the year, but it isn't likely to provide many clues about when the Fed will consider tightening," said economist James Glassman of JP Morgan Securities Inc in New York.

The questions from lawmakers are sometimes free-wheeling, often aimed at eliciting an opinion from Greenspan that might be turned to political advantage. The Fed chief said in January that he doubted economic stimulus measures -- still being pushed by the Bush administration -- were needed but the topic could easily arise again.

"I do not think it is a critically important issue -- I think the economy will recover in any event," Greenspan said last month.

One potential question for the Fed chairman, who turns 76 next month, seemed to be put to rest this week when a White House official said that, contrary to market rumors, Greenspan wasn't likely to retire before his term ends in two years.

"I think he's a man of robust health who has no intention of going anywhere," said economic adviser Lawrence Lindsey.
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