US Federal Reserve chairman Mr Alan Greenspan said today the sluggish US economy is poised for a postwar rebound, but warned that the outlook is blurry and business caution remains a problem.
"I continue to believe the economy is positioned to expand at a noticeably better pace than it has during the past year, though the timing and the extent of that improvement remains uncertain," he told lawmakers.
The US economy grew at a sluggish annual rate of 1.6 per cent in the first quarter of 2003, latest government figures show.
"Unfortunately, the future path of the economy is likely to come into sharper focus only gradually," the powerful central bank chief told the House of Representatives financial services committee.
"In the meantime, we need to remain mindful of the possibility that lingering business caution could be an impediment to improved economic performance," he said.
US households seemed to be less apprehensive, Mr Greenspan said, a day after a Conference Board survey found consumer confidence took the biggest leap in 12 years in April as US forces seized Iraq and vanquished lingering war fears.
Most forecasters expected a rebound in economic activity in the second half of this year, Greenspan noted. Two months ago, the Federal Reserve also forecast growth picking up to 3.25 to 3.5 per cent in the last quarter of 2003. Recovering financial markets seemed to suggest a turnaround in long-awaited business investment, and a huge run-up in corporate debt risk premiums was mostly in the past, the Federal Reserve chairman said.
The decline in world oil prices since the Iraq war broke out also should ease pressure on corporate profits, giving a helping hand to investment.
Amid heightened global caution over the threat of deflation, Mr Greenspan also cast a wary eye at prices. "Core prices by many measures have increased very slowly over the last six months," he said.
"With price inflation already at a low level, further disinflation would be an unwelcome development, especially to the extent it put pressure on profit margins and impeded the revival of business spending.
A week ago, Mr Greenspan indicated he would accept a new term in the world's most influential economic job when his current posting expires in June next year. That word came after President George W. Bush signaled he was prepared to reappoint Mr Greenspan.
First appointed chairman in 1987, Greenspan has secured such a reputation that investors now begin to sweat at the slightest rumour that he may be replaced.
AFP