alan greenspan : follow - up to the semiannual monetary policy report to the congress testimony of mr alan greenspan, chairman of the board of governors of the us federal reserve system, before the committee on financial services, us house of representatives, 30 april 2003. * * * mr. chairman and members of the committee, i am pleased to have this opportunity to update you on developments in the us economy since mid - february, when i presented the federal reserve's semiannual monetary policy report. at that time, i noted that the economic expansion over the preceding year had been modest. spending by households had contributed importantly to the gains in economic activity. the nation's strong underlying productivity performance was providing ongoing support for household income. that rise in income, combined with low interest rates, reduced taxes, and the availability of substantial home equity, had spurred solid gains in consumer spending and a robust advance in residential construction. in contrast, although the contraction in capital spending appeared to have slowed, we had yet to see any convincing signs that a sustained pickup in business spending was emerging. moreover, heightened geopolitical tensions were adding to the already considerable uncertainties that had clouded the business outlook over the preceding three years. the general climate of caution in the business sector was manifest in a number of ways, including restrained hiring, a reluctance to invest in new capacity, and aggressive actions to maintain low levels of inventories. in late february and early march, the risks and uncertainties surrounding the economic outlook intensified as the range of possibilities for the timing, duration, and economic consequences of the pending war in iraq appeared to widen. in financial markets, a greater sense of caution among investors seemed to bolster the demand for treasury and other fixed - income securities at the expense of equities ; the price of crude oil moved up, as did the prices of gasoline and home heating oil ; and consumer confidence sagged further. after picking up in january, payroll employment and manufacturing production turned down again in february and march. when the onset of the war became imminent, financial markets rallied, and the price of crude oil dropped back. market participants seemed buoyed simply by the elimination of uncertainty about the timing of the start, and hence the end of hostilities, although a still - significant amount of unease inevitably remained about the way the war might progress and how severely it might disrupt oil production and economic activity. in such an environment, we had little ability to distinguish temporary changes from more persistent shifts in underlying economic

rapid, forceful, and sustained policy response, many sectors of the economy would be able to bounce back strongly once the virus was under control. that response would need to come from actions across all levels of government, from health and fiscal authorities, and from the federal reserve. it also seemed likely that the sectors most affected by the pandemic — those relying on extensive in - person contact — would face a long and difficult path to recovery. these sectors and people working in them would likely need targeted and sustained policy support. some asked what the fed could do to address what was essentially a medical emergency. we identified three ways that our tools could help limit the economic damage from the pandemic : providing stability and relief during the acute phase of the crisis when much of the economy was shut down ; vigorously supporting the expansion when it came ; and doing what we could to limit longer - run damage to the productive capacity of the economy. 1 / 4 bis central bankers'speeches the recession and nascent recovery when it became clear in late february that the disease was spreading worldwide, financial markets were roiled by a global flight to cash. by the end of the month, many important markets were faltering, raising the threat of a financial crisis that could exacerbate the economic fallout of the pandemic. widespread economic shutdowns began in march, and in the united states, with many sectors shut down or operating well below capacity, real gdp fell 31 percent in the second quarter on an annualized basis. employers slashed payrolls by 22 million, with those on temporary layoff rising by 17 million. broader measures of labor market conditions, such as labor force participation and those working part time for economic reasons, showed further damage. in response, we deployed the full range of tools at our disposal, cutting rates to their effective lower bound ; conducting unprecedented quantities of asset purchases ; and establishing a range of emergency lending facilities to restore market function and support the flow of credit to households, businesses, and state and local governments. we also implemented targeted and temporary measures to allow banks to better support their customers. the fiscal response was truly extraordinary. the unanimous passage of the cares act and three other bills passed with broad support in march and april established wide - ranging programs that are expected to provide roughly $ 3 trillion in economic support overall — by far the largest and most innovative fiscal response to an economic crisis since the great depression. what have these policies managed to accomplish so far? first, the substantial fiscal