Economists viewed Greenspan's comments that the Fed, which has already reduced interest rates by a full percentage point this year, is prepared cut rates again to prevent the economy from slipping into a recession. Many analysts expect a cut of one-half percentage point at the Fed's next meeting, March 20. A few believed the Fed might cut rates before then. Looking ahead, he cited signs of hope that the economy will emerge relatively quickly from its current weakness. The remarkable surge in productivity growth that began four years ago continued even as the economy slowed, he said.
Higher productivity is the key factor supporting rising living standards.
The slowdown in economic activity was reflected in the Fed's new economic forecast, which Greenspan presented along with his testimony. The Fed now believes the economy will grow by 2 percent to 2.75 percent this year, well below the forecast Greenspan delivered to Congress last July. That forecast had put growth in the gross domestic product at a much stronger 3.25 percent to 3.75 percent. In light of the bigger drop in activity, the Fed raised its estimate for unemployment slightly, to around 4.5 percent by the end of this year. Last July, the Fed had estimated unemployment would climb to around 4.2 percent by the end of 2001, a level it reached in January.