Shortly before Greenspan spoke, the government reported that retail sales surged by a strong 0.7 percent in January, the biggest increase since September and a strong improvement from a lackluster 0.1 percent December gain. The central bank in January cut interest rates by a full percentage point in two moves, the biggest rate reduction in a single month in Greenspan's 13-year tenure at the Fed. He blamed much of the economy's weakness on an effort by businesses to cut back quickly on production in the face of falling sales. Still, Greenspan cited signs for hope that the economy will emerge relatively quickly from the current weakness. He said the remarkable surge in productivity growth that began four years ago was continuing even as the economy slowed.
Higher productivity is the key factor supporting rising living standards.
He also said there is no evidence that the big jump in energy prices is causing inflation problems outside of that sector. The fact that inflation has remained subdued has allowed the central bank to move as fast as it has to cut interest rates to spur growth, Greenspan said. Greenspan made only a brief mention in his testimony of his change in views about how government surpluses should be used. On Jan. 25, he told the Senate Budget Committee he had dropped his opposition to using part of the projected surplus for tax cuts. He said the surplus forecasts have grown so large that there is enough money to pay down the national debt and cut taxes.