Greenspan gives upbeat assessment of US economy

But freefall continues on NYSE

The Federal Reserve Chairman Alan Greenspan says the US economy is on the road to full recovery but will keep feeling the effects of last year's recession.

He also told Congress today that corporate executives should be held accountable for the accuracy of statements about the financial condition of their companies.

"The effects of the recent difficulties will linger for a bit longer but as they wear off, and absent significant further adverse shocks, the US economy is poised to resume a pattern of sustainable growth," he told the Senate Banking Committee.

Delivering his semi-annual report on the economy, Mr Greenspan struck a more upbeat and reassuring tone than he had earlier this year.

He said he and his Fed colleagues now expect the economy this year to grow between 3.50 percent and 3.75 percent when measured from the fourth quarter of 2001. That's stronger than the the 2.5 percent to 3 percent pace forecast in February.

But he also sounded a warning, saying: "Financial markets have been notably skittish of late and business managers remain decidedly cautious."

And he said checks and balances on corporate governance that worked well in the past might have been hurt by the go-go mentality of the 1990s that "arguably engendered an outsized increase in opportunities for avarice".

Stocks fell moderately at the beginning of today's trading on Wall Street and carried on falling in the wake of Mr Greenspan's report.

Mr Greenspan said a growing number of economists believe the Fed will keep rates unchanged through the rest of the year. Low interest might motivate consumers to keep spending and businesses to invest, forces that would bolster economic growth.

Consumers, whose spending accounts for two-thirds of all economic activity, have been holding up despite the spotty recovery and the sour stock market, he said.

"Consumers do not appear to have retrenched in the retail markets," he said. "Indeed consumers responded strongly to the new interest rate incentives of motor vehicle manufacturers this month. Early reports indicate a significant improvement in sales over June."

Weak stocks have yet to crimp consumer spending because of offsetting boosts from low interest rates, solid appreciation in home values and extra cash from refinancing.

In contrast, business spending has remained weak, he said. Companies whose profits took a hit during the slump are reluctant to make big commitments in hiring and in investment until they are sure the recovery is here to stay.

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