Federal Reserve chairman Alan Greenspan will seek to calm congressional concern over recent market turmoil in the wake of a series of big corporate scandals when he testifies before the Senate banking committee Tuesday, analysts said.
Greenspan is expected to appear before the committee at 10am US time today to deliver the Fed's semi-annual report on monetary policy and his usual brief economic forecast.
The slide in stock and currency markets follow corporate accounting scandals involving Enron, Arthur Andersen, Xerox, WorldCom and others.
"The risk is if you have continued financial distress, clearly that's going to hurt consumption and investments and would trigger a new recession," said John Silvia, chief economist of Wachovia Securities.
Consumption is the main motor of growth for any economy, he said.
Last week the Dow Jones industrial average, the best-known Wall Street index, plummeted 7.4 percent. It has lost 20 percent of its value since March.
Likewise, Standard &Poor's 500, recognized as a more representative sampling of New York Stock Exchange stocks, fell 6.8 percent last week alone.
Some 80 million Americans have their retirement funds tied up in the stock market. Those 80 million are expected to rein in their spending to make up for value lost from their retirement portfolios.
In the face of such economic turmoil, Greenspan will likely "reassure investors that Fed policy will counter any drag from falling equity prices and continue to foster a return of full employment," said JP Morgan economists in a research note.
He could also say, as he has in his congressional testimony since February, that "the near-term outlook is clouded ... by weak stocks prices, soft business investment and uneven foreign growth," according to David Gilmore, partner at Foreign Exchange Analytics.
Richard Rippe, chief economist, Prudential Securities, said: "I think he will reaffirm the Fed's intention to remain accommodative [until they] achieve a sustainable growth rate in final demand."
The principal interest rate manipulated by the Fed, the overnight rate, has been at 1.75 percent since December, its lowest level in 40 years.
Besides delivering his report on the health of the US economy, Greenspan will surely take advantage of the intense media coverage that usually surrounds such hearings, to reassure US investors and the public that the US financial system remains solid despite the recent scandals, said Silvia.
Consumer confidence fell the most this month since terrorists attacked New York and Washington, as flagging trust in U.S. companies hammered stocks and threatened the economic recovery.
The University of Michigan's preliminary index of consumer sentiment for July sank to 86.5, an eight-month low, from 92.4 in June. The index had dropped almost 10 points in September.
Bristol-Myers Squibb Co last week joined a list of companies whose accounting is under federal scrutiny.
``There is a heightened risk that the troubles in the stock market will bleed over into the real economy,'' said Stephen Stanley, an economist at Greenwich Capital Markets Inc. in Greenwich, Connecticut.
Consumer spending supports two-thirds of the economy, which is why investors are watching for any spillover from the stock decline. That hasn't happened so far. US retail sales rose 1.1 percent in June, the Commerce Department reported. Shoppers stepped up purchases of cars, clothing and appliances in the same month confidence also fell. Sales had dropped 1.1 percent in May.
That's not the only sign of health in the broad economy.
General Electric Co, which makes products from light bulbs to jet engines and owns the NBC network, said third-quarter earnings will jump as much as 25 percent from a year earlier. Dell Computer Cor., the world's second biggest maker of personal computers, boosted its sales and profit forecasts.
Economists had expected a reading of 93 in the preliminary index, which is based on a phone survey that will ultimately include about 500 households.
DETERRENCE: With 1,000 indigenous Hsiung Feng II and III missiles and 400 Harpoon missiles, the nation would boast the highest anti-ship missile density in the world With Taiwan wrapping up mass production of Hsiung Feng II and III missiles by December and an influx of Harpoon missiles from the US, Taiwan would have the highest density of anti-ship missiles in the world, a source said yesterday. Taiwan is to wrap up mass production of the indigenous anti-ship missiles by the end of year, as the Chungshan Institute of Science and Technology has been meeting production targets ahead of schedule, a defense official with knowledge of the matter said. Combined with the 400 Harpoon anti-ship missiles Taiwan expects to receive from the US by 2028, the nation would have
A subsidiary of a Hong Kong-based company that has lost control of two critical ports on the Panama Canal said it is seeking US$2 billion of compensation in damages from Panama over its “illegal” takeover of the ports. Panama Ports Co, a unit of Hong Kong’s CK Hutchison Holdings (長江和記實業), on Friday said in a statement that it is demanding the sum under international arbitration proceedings that it had already started. The Panamanian government last week seized control of the Balboa and Cristobal ports on each end of the Panama Canal, after the country’s Supreme Court declared earlier that a concession allowing
POSSIBILITIES EMERGE: With Taiwan’s victory and Japan’s narrow win over Australia, Taiwan now have a chance to advance if South Korea also beat the Aussies Taiwan has high hopes that the national baseball team would advance to the World Baseball Classic (WBC) quarter-finals after clinching a crucial 5-4 victory over South Korea in a nail-biting extra-inning game at the Tokyo Dome yesterday. Boosted by three home runs — two solo shots by Yu Chang (張育成) and Cheng Tsung-che (鄭宗哲) and a two-run homer by Stuart Fairchild — the triumph gave Taiwan a much-needed second victory in the five-team Pool C, where only the top two finishers would advance to the knockout stage in Miami, Florida. Entering extra innings with the game tied at four apiece, Taiwan scored
MISSION OF PEACE: The foreign minister urged Beijing to respect Taiwan’s existence as an independent nation, and work together to ensure peace and stability in the region Minister of Foreign Affairs Lin Chia-lung (林佳龍) yesterday rejected Chinese Minister of Foreign Affairs Wang Yi’s (王毅) comments about Taiwan, criticizing China as a “troublemaker” in the international community and a disruptor of cross-strait peace. Speaking at a news conference on the sidelines of the Chinese National People’s Congress, Wang said that Taiwan has always been a territory of China and that it would be impossible for it to become its own country. The “return” of Taiwan to China was the natural outcome of the Chinese people’s resistance against Japan in World War II, and that any pursuit of independence was “doomed
RSS