Financial markets surged on both sides of the Atlantic yesterday after America's chief central banker gave a strong hint the recession was over.
Alan Greenspan, the chairman of the Federal Reserve, told a powerful Senate committee the US economy was beginning to show signs of growth.
"There have been signs recently that some of the forces that have been restraining the economy over the past year are starting to diminish and that activity is beginning to firm," he told the Budget Committee.
He also cast doubt on the need for President George Bush's package of tax cuts to help boost economic growth.
The tone of the speech was a marked reversal of comments he made a fortnight ago when he said it was "premature" to say the recession was over. Yesterday Dr Greenspan admitted he overdid his pessimism with some "unfortunate phraseology" – a reference to his description of "significant risks" to the outlook.
On Wall Street the Dow Jones index rose 120 points, or 1.2 per cent, while the technology-rich Nasdaq was up 1.5 per cent on upbeat remarks on the IT revolution. Market sentiment was also buoyed by a fall in new jobless claims.
In London the FTSE 100 closed up more than 1 per cent, while the gains were reflected across European markets.
In his testimony Dr Greenspan pointed to an imminent revival in industrial production and said the conditions were still conducive to household spending. He said companies were running down inventories at such a "sizeable" rate that they would soon have to build up stocks.
He also cast doubt on the need for a fiscal stimulus package, saying it was not "critical".
In answer to senators' questions, he said economic growth was close to zero but that the US economy was at a turning point. "We are just at this particular point turning, as best I can tell it. In other words, we are close to zero GDP change," he said.Reuse content