Fed: Signs of a Slow, Sure Recovery

Presenting the central bank's semiannual assessment of the nation's economic health, Greenspan said the economy appears "close to a turning point" that will signal the end of the nearly year-old recession.

The nation has largely recuperated from the financial shock of Sept. 11, Greenspan said, and there is little evidence that the collapse of Enron Corp. and other recent economic setbacks will cause the recovery to stall.

"Even a subdued recovery beginning soon would constitute a truly remarkable performance for the American economy," Greenspan said in testimony before the House Financial Services Committee.

Greenspan's prognosis, though characteristically cautious, added the Fed's authoritative voice to a growing consensus of economists who say the recession of 2001 will turn out to be unusually shallow and short-lived.

If the tentative indications of a turnaround are confirmed, Greenspan said, "we will have experienced a significantly milder downturn than the long history of business cycles would have led us to expect."

But the recovery may prove equally feeble, Greenspan suggested. The unemployment rate, currently 5.6%, probably will rise above 6% and stay there "for some time" before the job market begins to firm, he said. Economic growth will accelerate slowly, reaching an annual rate of 2.5% to 3% by the end of this year. The gradual expansion is unlikely to rekindle inflation, which the Fed expects to remain below 1.5%.

His carefully parsed predictions signaled that the Fed feels little pressure to begin raising interest rates to keep the economy from overheating. The central bank chopped short-term rates 11 times last year to combat a deepening business sector downturn and the shock of Sept. 11.

"There were absolutely no hints or signs in the commentary or the forecasts of the Federal Reserve that there would be any reason to raise interest rates this year," said Allen Sinai, president of New York-based Decision Economics.

That message heartened bond traders, who had begun to worry that interest rate hikes were imminent. But its effect on the stock market was mixed, as initial relief gave way to anxiety about the implications of a long, drawn-out recovery. The Dow Jones industrial average ended the day at 10,127.58, up 12.32, and the S&P 500 eked out a 0.51 gain to close at 1,109.89. But the Nasdaq composite index fell 14.98, finishing at 1,751.88.