Greenspan’s Optimism Depresses Wall Street

Federal Reserve Board Chairman Alan Greenspan, noticeably more upbeat than just a month ago, said Wednesday that he believes a major drag on economic growth over the last year is lessening and that the economy has new “staying power.”

Greenspan’s optimism, however, translated into deeper pessimism on Wall Street over prospects for further Fed rate cuts. The Dow Jones industrial average closed down 43.72 points at 5,626.88 after tumbling as much as 60 points in late-afternoon trading.

Analysts blamed the Fed chairman’s remarks and technical factors that depressed bond prices.

“This is a hard time to be Fed chairman,” said Bruce Steinberg, economist at Merrill Lynch in New York. “If he says everything is fine, then the markets fall because they don’t think he will cut rates.”

In a separate development, the Senate Banking Committee unanimously endorsed Greenspan’s nomination to a third four-year term, along with two other Clinton nominees--Alice Rivlin and Laurence Meyer--to fill vacancies on the central bank’s seven-member board. The full Senate is expected to confirm the three by the end of the week.

In his testimony before the House Budget Committee, Greenspan cited a number of recent, more positive reports about economic activity since congressional testimony he gave in February in which he had warned that the economy was going through a “soft patch.”

The central bank’s interest-setting Federal Open Market Committee met Tuesday and voted to leave rates unchanged. The panel will not meet again until May 21, but many analysts believe as long as the upturn in business activity continues to strengthen, the central bank may well remain on the sidelines for the rest of the year.