Greenspan says Fed will keep rates low "for as long as it takes"
But he highlights some positive signs in the economic outlook

Federal Reserve Board Chairman Alan Greenspan said July 15 that the Federal Reserve plans to hold interest rates low "for as long as it takes to achieve a return to satisfactory economic performance."

In testimony before the House of Representatives Financial Services Committee, Greenspan highlighted a number of positive signs in the economy, such as a stabilization in industrial production after months of declines, increases in household wealth, and improvements in corporate balance sheets. He also said that recent federal tax cut legislation that "will provide a considerable lift to disposable incomes of households in the second half of the year."

Nevertheless, he pointed to a decision in June by the Federal Reserve's policymaking body, the Federal Open Market Committee (FOMC), to lower interest rates another quarter-point, and said "The FOMC stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance. In the judgment of the Committee, policy accommodation aimed at raising the growth of output, boosting the utilization of resources, and warding off unwelcome disinflation can be maintained for a considerable period without ultimately stoking inflationary pressures."

This was the fourth appearance by Greenspan before the committee in 2003 to talk about the status of the U.S. economy.

He said that along with improved balance sheets, the U.S. economy is seeing fewer loan defaults.

He said U.S. investors have become more receptive to risk. However, he added, in the wake of the focus on "corporate behavior," executives and boards of directors are still unclear about how their shareholders would view increased risk-taking. Should companies see a sustained increase in demand for goods and services, they would probably be more inclined to make more capital investments and hire more people, he said.

Greenspan said the economy also faces some "downside risks" due to a rebound in energy costs and recent signs that "aggregate demand may be flagging among some of our important trading partners." He noted that oil prices have risen above $30 a barrel, following a sharp drop in prices in March based on the news that the Iraqi oil fields had been secured. The price rebound, he said, has occurred "as market expectations for a quick return of Iraqi production appear to have been overly optimistic given the current security situation."

Also "worrisome," he said, is the rise in natural gas prices. A shortage of gas supplies is projected to "persist well into the future," he said.