Alan Greenspan, the chairman of the Federal Reserve, said Tuesday that the economy had stopped deteriorating last month and that he saw "the makings of a turnaround in economic activity."
But he also said that inflation was "not something of significance for the Federal Reserve to be concerned about" now.
This statement caused investors to believe that the Fed is willing to bolster the economy by cutting short-term interest rates even further when it meets later this month.
Greenspan's remarks, made by satellite to a bankers' conference in Berlin, was the clearest version yet of a carefully scripted message he has been delivering over the last month.
His comments have contributed to the unusual combination of increases in both stock and bond prices, making an economic rebound more likely.
When investors become hopeful about the economy, they typically sell bonds, which are a more conservative investment than stocks.
By emphasizing the positive signs he has seen, like a fall in both energy and finance costs, Greenspan has contributed to the recent rise in confidence among consumers, executives and stock investors.
He said Tuesday that there had recently been "a dramatic reversal in all of the various different elements" that had been harming the economy early this year.
But by noting that the Fed remains concerned about deflation, a sustained decline in prices that can cripple an economy, Greenspan has signaled to bond investors that interest rates will probably remain low for months and could even fall further.
Investors have responded by bringing down long-term interest rates, which determine the cost of mortgages and many other loans, even as they have bid up stocks.
"He's separated out the two groups on Wall Street and he has played them both off each other," said Drew Matus, an economist at Lehman Brothers.
On Tuesday, Greenspan emphasized that the evidence of a recovery remained too scant for him to be confident of what would happen next.
"There is some indication of return" to faster growth, he told the bankers, "but it is at this stage not by any means clear."
He spent much of his opening remarks, which were part of a panel of central bankers, listing reasons to be optimistic, including a pickup in consumer confidence.
Greenspan also pointed out the positive impact the additional money that the recently signed tax cut will give many households would have on the US economy.
Most important, he said, stocks have risen and interest rates fell on junk bonds, which are issued by companies whose prospects investors consider questionable.
He added that the change in these credit markets suggested "a fairly marked turnaround" for the economy. After falling into recession in March 2001, the economy began growing again late that year.
So far, though, the growth has been too weak for companies to add new workers.
The US economy has lost more than two million jobs since early 2001, while wages have stopped growing more quickly than inflation for many workers.
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