alan greenspan : federal reserve boarda€™s 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, washington, 11 february 2004. * * * mr. chairman and members of the committee, i am pleased to be here today to present the federal reserve's monetary policy report to the congress. when i testified before this committee in july, i reported that conditions had become a good deal more supportive of economic expansion over the previous few months. a notable reduction in geopolitical concerns, strengthening confidence in economic prospects, and an improvement in financial conditions boded well for spending and production over the second half of the year. still, convincing signs of a sustained acceleration in activity were not yet in evidence. since then, the picture has brightened. the gross domestic product expanded vigorously over the second half of 2003 while productivity surged, prices remained stable, and financial conditions improved further. overall, the economy has made impressive gains in output and real incomes ; however, progress in creating jobs has been limited. looking forward, the prospects are good for sustained expansion of the u. s. economy. the household sector's financial condition is stronger, and the business sector has made substantial strides in bolstering balance sheets. narrowing credit risk spreads and a considerable rally in equity prices have reduced financing costs and increased household wealth, which should provide substantial support for spending by businesses and households. with short - term real interest rates close to zero, monetary policy remains highly accommodative. and it appears that the impetus from fiscal policy will stay expansionary, on net, through this year. these circumstances all should spur the expansion of aggregate demand in 2004. at the same time, increases in efficiency and a significant level of underutilized resources should help keep a lid on inflation. in retrospect, last year appears to have marked a transition from an extended period of subpar economic performance to one of more vigorous expansion. once again, household spending was the mainstay, with real personal consumption spending increasing nearly 4 percent and real outlays on residential structures rising about 10 percent. last year's reductions in personal income tax rates and the advance of rebates to those households that were eligible for the expanded child tax credit boosted the growth of real disposable personal income. the very low level of interest rates also encouraged household spending through

- term yields dropping more than yields of longer maturities. yields on swiss government bonds are currently negative up to a maturity of 13 years. in the market for private sector bonds, interest rates fell as well, but not by as much as government bond yields, reflecting the greater substitution opportunities for corporate bond investors. while the introduction of the negative interest rate caused interest rates on the money and capital markets to decline, mortgage rates did not decrease to the same extent. indeed, for long - term mortgages, interest rates are slightly higher than they were at the beginning of the year. this is because banks ’ refinancing costs have not fallen to the same extent as money market interest rates. as a result, banks ’ interest margins have come under pressure. 1 to partially offset this effect, banks have raised their mortgage interest rates. as yet, therefore, fears that the negative interest rate might contribute to stronger growth in mortgage lending have proved unfounded. this affects the banks ’ “ liability margin ”, which is the difference between the interest on maturity - matched alternative funding sources and the interest on deposits. bis central bankers ’ speeches the swiss economy in a difficult environment so far, i have spoken mainly about exchange rates and interest rates – that is, monetary conditions in the swiss economy. i would now like to turn to the real economy. switzerland is a relatively small open economy. 2 in general, this means that international developments matter a lot to switzerland. however, during the global recession of 2009 and the sluggish recovery that followed, the swiss economy proved to be surprisingly resilient. the reasons for this relatively strong performance are manifold : to start with, switzerland did not suffer from a housing market correction or over - indebtedness of the private sector. moreover, favourable labour market conditions and migration have remained a constant support to private consumption. chart 5 shows the level of gdp for different countries, indexed to 100 at the respective precrisis peak. swiss gdp is now nearly 8 % above its pre - crisis peak. as can be seen in the chart, among large advanced economies this performance is matched only by the us. economic growth held up relatively well even in years when the economy faced a strong and abrupt exchange rate appreciation. a major factor here is monetary policy : with its monetary policy measures, the snb was able to absorb some of the risks affecting the economy during the various episodes of the financial crisis. another factor is the swiss economy ’ s high degree of compet