US Federal Reserve chairman Mr Alan Greenspan will today sketch out his outlook for the US economy as Wall Street braces for possible hints that short-term interest rates will remain low.
The Fed chief is scheduled to testify before the House Financial Services Committee at this afternoon in the first part of his semi-annual report on the US economy. He will return to Capitol Hill on Wednesday to deliver part two of the testimony before the Senate Banking Committee.
Ahead of the testimony, bond prices fell amid traders' fears that Mr Greenspan could strike an optimistic tone about the prospects for a stronger economic recovery.
In a gain fuelled by reports of robust banking profits, the Dow Jones industrial average rose 58 points to end at 9,177. The tech-laden Nasdaq added 21 points to 1,755, its highest close since April 22, 2002.
Although Wall Street has been enthusiastic in its hopes for a better economic performance, there is little doubt the economy so far has not responded in the way that economists, including Mr Greenspan, had said might accompany the end to the Iraq war.
The US unemployment rate hit a nine-year high of 6.4 per cent in June and an array of gauges of the factory sector have indicated that industry is still struggling.
Tax cuts that take effect this month, low interest rates and a weaker dollar that could stimulate export growth are all reasons many private analysts believe growth will pick up as 2004 progresses.
But just how much it will accelerate is the key question and one worry the Fed has is that the very low inflation in the economy could give way to deflation, or a broad drop in prices, if consumer and business demand remains weak.
Markets will be keen to see if Mr Greenspan addresses the idea of so-called unconventional tools - measures apart from changes in short-term interest rates that the Fed could use to spur growth.