Greenspan Calls for Resumption of Budget Talks
Federal Reserve Board Chairman Alan Greenspan sought to prod the White House and Congress to resume moribund budget negotiations, warning Wednesday that failure to reach a deal was already having adverse effects on financial markets.
Greenspan’s comments came as indications grew that President Clinton is close to announcing his decision to renominate Greenspan for another term as chairman. White House officials also indicated that the president is close to deciding on nominations to fill two other spots on the seven-member Fed board, saying the announcements could come as early as today.
Testifying before Congress for a second day Wednesday, Greenspan also tried to soften comments that had helped push the markets lower the day before. Stock prices more than made up the ground they had lost Tuesday.
Greenspan said he believes the chances are better than 50-50 that the “soft patch” the economy is going through will not result in a recession.
But he said the central bank is mindful that there are risks to this forecast and that that was the reason it had moved to cut interest rates for a third time Jan. 31.
He said it “would not be inconsistent to move rates lower” if inflationary pressures remain subdued.
While that comment is not significantly different from his remarks Tuesday, when he talked of taking out a “monetary insurance policy” for the economy, financial markets reacted more favorably, believing that Greenspan’s use of the word “recession” during his testimony meant the Fed will indeed cut rates further.
The Dow Jones industrial average, which fell 44.79 points Tuesday, recouped all of those losses Wednesday. It closed at 5,515.97, up 57.44, with the rally led by a rebound in the bond market.
Greenspan blamed recent problems on pessimism about a budget deal. There have been no face-to-face talks between the White House and Republican leaders in more than a month, and both sides have sounded increasingly worried about the chances of reaching a deal before the November election.
