Fed Chief’s Report Aids Bond Rally

Federal Reserve Board Chairman Alan Greenspan on Tuesday offered an upbeat assessment of the economy, saying the Fed doesn’t see any imminent threats of recession or inflation.

Greenspan’s message, delivered to the House Banking Committee five days after he expressed similar themes before the panel’s Senate counterpart, contributed to a bond market rally.

But it wasn’t enough to help the stock market, where the Dow Jones industrial average fell 44.39 points and the Nasdaq composite plunged 32.34 points as technology shares declined for the third-straight session.

Greenspan, showing his usual verbal agility, skipped away from committee members who tried to pin him down on the precise circumstances under which the Fed would boost interest rates.

No single figure--whether the growth rate of the economy or the unemployment rate--would be the trigger for Fed action, the chairman insisted. “It would be inappropriate to slow growth on the basis of some arbitrary statistical measure,” he said.

At one point, he said the Fed distrusts isolated numbers such as the growth rate because “we don’t know what growth is.” The government’s measure of growth doesn’t portray the true expansion of the economy because it doesn’t reflect increased productivity from the use of computers throughout the economy.

Wages are rising, but prices aren’t, Greenspan told the committee. What the Fed cannot determine is whether this means increased productivity, which is good for the economy, or whether it means a coming slump in corporate profits.

“We are approaching some sort of fulcrum--the economy can go in two different ways and it’s too early to tell,” he said.