US Federal Reserve Chairman Alan Greenspan's main task when he goes before Congress this week will be to create optimism about the economy's direction in the face of possible war.
The chairman offers his semi-annual assessment of economic prospects on Tuesday before the Senate Banking Committee and, a day later, crosses Capitol Hill to deliver what will likely be identical testimony to the US House of Representatives' Financial Services Committee.
"He's going to want to create a relatively optimistic picture by saying that ongoing geopolitical concerns are the primary obstacle to above-average growth," predicted William Dudley, chief economist for Goldman Sachs in New York. "And then, when Iraq is resolved, hopefully relatively quickly, capital spending will pick up and things will look more rosy."
That was essentially the assessment the Fed chief last offered, in a speech in New York in mid-December, and since then little has occurred to change that prognosis.
However, President George W. Bush's US$695 billion, 10-year tax-cut program should offer lawmakers a whole new focus.
"Republicans and Democrats are at war about what the shape of an ideal fiscal package should be and I'm sure that each side would love to get Chairman Greenspan's blessing for what their particular ideal would be," Dudley said.
The veteran central bank chief's testimony always is hotly awaited by US and global financial markets and normally would set the tone for much of next week's trading activity.
In recent weeks, however, markets have responded as much to the steady increase of pressure against Iraq to disarm as to any of the mixed economic data that have emerged.
Against that complex geopolitical backdrop, Greenspan's testimony occurs in a specially charged atmosphere as Democrats and Republicans struggle over Bush administration plans for reinvigorating growth while deficits hit record levels.
"I think he does have a problem at this time in that the Bush administration, with which it is presumed he has some political sympathies, has proposed big tax cuts that on the one hand could help the economy but on the other hand may build in conditions for future inflation," said economist Kurt Karl of Swiss Re in New York.
Congressional budget watchdogs warned Wednesday that the country will run a US$199 billion budget deficit this year, over US$50 billion more red ink than last forecast.
The projections of deficits returning to levels last seen a decade ago come even before accounting for the costs of a possible war in Iraq and the new round of tax cuts pushed by President Bush in his State of the Union address last Tuesday. A growing deficit could make it harder for Bush to persuade Congress to fully embrace a new round of tax breaks.
Economists and business leaders, meanwhile, said tax cuts are likely to have much less impact on US jobs and investment in the near term than a resolution of the growing threat of war with Iraq.
"There's a strong economic rationale for getting this Iraq business over with one way or the other to remove this pall over the economy," said Bruce Bartlett, a Republican senior fellow with the National Center for Policy Analysis.
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