Greenspan Signals Slowed Pace for Rate Cuts

Federal Reserve Chairman Alan Greenspan, in a speech Thursday night, left the door open to further cuts in short-term interest rates to boost the ailing U.S. economy, warning that “the period of subpar economic growth is not yet over.”

But Greenspan also hinted that the Fed’s aggressive response to the sharp slowdown in growth--rate reductions have averaged a half-percentage point a month so far this year--may soon ease off.

“We are not free of the risk that economic weakness will be greater than currently anticipated, requiring further policy response,” the Fed chairman said, according to the text of his speech to the Economic Club of New York. “But we also need to be aware that our front-loaded policy actions this year should be providing substantial support for a strengthening of economic activity later this year.”

That “front-loaded policy” has lowered the Fed’s target for overnight interest rates to 4% from 6.5% at the beginning of the year, the most rapid reduction in rates since 1982 when the economy was in the midst of the worst recession since the Great Depression of the 1930s. But even such fast action has only begun to affect the economy because rate cuts work with a significant lag.