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   Greenspan: Economy Regaining Some Traction

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david
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Greenspan: Economy Regaining Some Traction
« on: Sep 8^th, 2004, 10:03am »

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Greenspan: Economy Regaining Some Traction

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By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON - Federal Reserve (news - web sites) Chairman Alan Greenspan (news - web sites) said Wednesday the economy has "regained some traction" after a late spring slowdown that was triggered by a sharp spike in oil prices.

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Greenspan's moderately upbeat forecast was likely to cement expectations that the central bank will raise interest rates for a third time when Fed policy-makers meet in two weeks.

In testimony prepared for the House Budget Committee, Greenspan said that two key indicators, consumer spending and housing construction, bounced back in July after a weak performance in June.

"Economic activity hit a soft patch in late spring after having grown briskly in the second half of 2003 and the first part of 2004," Greenspan told the committee.

"The most recent data suggest that, on the whole, the expansion has regained some traction," he said.

The Fed has boosted the federal funds rate, the interest that banks charge on overnight loans, from a 46-year low of 1 percent to 1.5 percent in the past two months.

Economists believe the Fed will keep raising rates at a measured pace at coming meetings, including another quarter-point increase on Sept. 21.

In his prepared remarks, Greenspan made no comments on the direction of interest rates.

He said that this year's slowdown "in activity no doubt is related, in large measure, to this year's steep increase in energy prices."

The big jump in energy prices acts like a tax on consumers, leaving them less money to spend on other items.

A big slowdown in consumer spending pushed overall economic activity down from a robust 4.5 percent rate of growth in the first three months of this year to a much slower 2.8 percent growth rate in the second quarter.

The slowdown has been accompanied by a significant slowing in job growth as well, although there was a bit of a rebound in August with payrolls rising by 144,000.

The state of the economy has become a debating point in the presidential campaign with President Bush (news - web sites) contending that his tax cuts averted a more serious recession in 2001 and are helping to promote a sustained recovery currently.

Democratic challenger John Kerry (news - web sites) contends that the tax cuts went primarily to the wealthy and have left the country with record budget deficits.

Greenspan, as he has in the past, warned that Congress must act with more urgency to address the country's long-term deficit problems before the retirement of the baby boom generation at the end of this decade.

"As a nation, we may have already made promises to coming generations of retirees that we will be unable to fulfill," he told the budget panel. "If, on further study, that possibility turns out to be the case, it is imperative that we make clear what real resources will be available so that our citizens can properly plan their retirements."

Greenspan has suggested in the past that Congress consider raising the retirement age for receiving full Social Security (news - web sites) benefits or adopting a less generous annual cost-of-living adjustment as two ways to trim payments to baby boomers.

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