WASHINGTON Greenspan warns of soft economy, dim business prospects

The Fed chairman cited a number of forces that are holding back growth.
WASHINGTON (AP) -- Federal Reserve Chairman Alan Greenspan warned Congress on Wednesday that shocks from falling stock prices and worries about war with Iraq are dimming business prospects, even though the economy has proved to be "remarkably resilient" over the past year.
Greenspan said the Fed's decision last week to cut interest rates by a larger-than-expected half-point was the central bank's response to the growing dangers and he repeated the Fed's view in its rate cut announcement that the central bank believed the economy would be able to pull out of the current weak period.
Forces against growth
But Greenspan told the Joint Economic Committee there was no doubt that a number of forces were holding back growth. He cited in particular the fallout from revelations about corporate accounting scandals, the continued reluctance of businesses to increase their investment spending and "heightened geopolitical risks."
"Over the last few months, these forces have taken their toll on activity and evidence has accumulated that the economy has hit a soft patch," Greenspan told the panel.
Greenspan said all of these problems were creating uncertainty among consumers, who have been the driving force in the current recovery, and among businesses.
"Households have become more cautious in their purchases, while business spending has yet to show any substantial vigor," Greenspan said.
He said it was against this backdrop that the Fed's interest rate panel, the Federal Open Market Committee, decided last week to cut its target for the federal funds rate, the interest that banks charge on overnight loans, by a half-point to 1.25 percent, the lowest level in 41 years.
Greenspan gave no hint in his prepared testimony about what the central bank might do next, but private economists believe if the economy continues to weaken, the central bank will cut rates again either at its next meeting in December or at its first meeting of the new year in January.