An Upbeat Greenspan Sees Stronger Economy

Federal Reserve 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.

Meanwhile, 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 economy is moving past the disruptions that had slowed it in previous months,” he said.

He noted February’s 705,000 increase in payroll jobs but cautioned that this bounce-back, the biggest payroll increase in more than 12 years, almost certainly exaggerated the current strength in the labor market.

“But even so, the current economic expansion seems to have exhibited staying power,” Greenspan said, adding at another point that any remaining downside risks do not appear “so strong as to seriously jeopardize the continued expansion of the economy.”