Alan Greenspan's Remarks to Financial Services Committee Fuzzy and Noncommittal

Well folks, it appears America's chief economist and financial expert is at a loss for words. After reading Federal Reserve Chairman's remarks made to the House of Representatives Committee on Financial Services on April 30th, I get the impression he as much in the dark as you and I when it comes to predicting the economy. Allow me to give you my interpretation of what he said.

Mr. Greenspan reminded that in Mid-February, in his semi-annual presentation on monetary policy, he reported that robust household spending has been a significant factor in maintaining modest economic activity. Events including the 9/11 tragedy, various corporate scandals and imminent war with Iraq compelled the business sector to refrain from capital spending and investment.

Simply put, since Corporate America slowed its spending and investment, it has been regular consumers like you and me that have prevented our economy from going down the tube. Congratulations to all of us who are busily spending our money and refinancing our homes to lower rates.

When it appeared that the war in Iraq was indeed going to be relatively swift, stock markets rallied, based on the assumption that Corporate America could soon get back to business without the uncertainty of war biting its ankles.

Mr. Greenspan described the Iraqi war as a "temporary change" that needs to be distinguished from "more persistent shifts in underlying economic trends". My translation - the financial markets continue to react on the events in Iraq, rather than intrinsic economic data that would better serve as economic indicators.

Six weeks after the start of the war, Mr. Greenspan suggests that there is only "limited readings on broader economic conditions and that information has been mixed". Data on consumer spending and confidence suggest that you and I will continue to spend the money in our pocketbooks, but data about businesses indicate that spending and hiring remains low.

Even though Mr. Greenspan says that recent economic data has been fuzzy and inconclusive, he does suggest that as Iraq business winds down, "the fundamental trends shaping the economic outlook should emerge more clearly". Mr. Greenspan reiterates his belief that the economy is "positioned to expand at a noticeably better pace than it has during the past year…" But he cautions that the degree of improvement and when it will occur remains uncertain.

So what does that tell me? It tells me that the Fed Chairman is predicting an economic rebound, but he just doesn't know when or how much. Basically, he seems to know about as much as you and I. Stay tuned.

Published: May 1, 2003

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, the president of PMC Mortgage Corporation in Alexandria, VA, is a mortgage columnist whose work has appeared in numerous consumer, real estate, and mortgage publications. Mr. Savage welcomes your questions for possible use in this column, however because of the volume of mail received, Mr. Savage cannot answer questions individually.