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Preview / WEEK OF JULY 15-21

Fed Chief to Speak Before Congress Panels

July 15, 2002|Tom Petruno

Wall Street will be looking for soothing words this week from Federal Reserve Chairman Alan Greenspan.

The Fed chief goes before the Senate Banking Committee on Tuesday and the House Banking Committee on Wednesday to deliver his semiannual economic report to Congress.

He is expected to paint a relatively upbeat picture of the economy, analysts say. He will almost certainly be asked about the stock market's woes and could try to offer some encouragement to beleaguered investors--without taking a stand on whether stocks are overpriced or underpriced.

Experts note that the Fed's ability to help the market is severely constrained. The central bank's interest rate cuts last year left its benchmark short-term rate at a 40-year low of 1.75%. Few economists believe the Fed will cut rates further, even if the economy appears to be slowing or even if the stock market keeps sliding in the near term.

To cut rates at this point could suggest the Fed is panicked about the economy and would raise comparisons with the situation in Japan. The Bank of Japan years ago reduced rates to near-zero levels but has yet to see those rates generate sustained strong economic growth.

Greenspan also may be asked about the dollar's slump this year against the euro, the yen and other currencies. Fed and Bush administration officials have painted the dollar's decline as overdue, given the currency's strength in the late 1990s.

But with the dollar at a two-year low against the euro and a nine-month low against the yen, losses are mounting for foreign investors who hold U.S. assets, especially stocks. If the dollar's weakness makes foreigners less willing to invest in U.S. assets, it could eventually fuel a capital crisis in the economy, because of the nation's heavy dependence on foreign money.

Tom Petruno

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