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Federal Reserve Chairman Warns of Sharp Economic Slowdown

Aired February 13, 2001 - 2:01 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

NATALIE ALLEN, CNN ANCHOR: First up, though, this hour, your money. Fed Chairman Alan Greenspan filled Congress in on the economy today, and he's still sounding like a gloomy Gus, Lou. Greenspan warned of a sharp slowdown, at least for the short term. He indicated the economy stalled around the turn of the year, but may, just may, be getting a second wind.

CNN Financial News correspondent Fred Katayama listened closely to the Fed chairman. He joins us from Washington. We certainly like that second wind part of what he had to say there, Fred.

FRED KATAYAMA, CNN CORRESPONDENT: You'll take whatever good news you can take; right, Natalie?

Well, the Federal Reserve chairman painted a picture of an economy that would grow sluggishly in the near term. He said that the risk tilts toward economic weakness for the foreseeable future.

Here's what he had to say:

(BEGIN VIDEO CLIP)

ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: Marginal tax rate reductions have always, in my mind, been the most effective way to enhance economic activity. But I was not in the Senate Budget Committee actually responding to a question which related to any particular tax recommendations that were currently in play.

(END VIDEO CLIP)

KATAYAMA: That was not the sound that we were planning to roll. But Greenspan there was talking about how he was not endorsing any one particular politicians' tax cut plan, but that he did endorse the idea of a tax cut. In the Q&A session, a lot of senators were more interested in his tax cut theories as opposed to his economic report.

But getting back to economic report, he predicts that the economy will grow between 2 and 2 1/2 percent this year. That is slower than 3 1/2 percent last year. Among other things, he noted that energy prices continue to dampen demand and that businesses and consumers were slowing down on their spending.

On the plus side, he says that the pricing pressures are rather subdued and expects inflation to abate. He also noted that productivity improvements were continuing and that using new technology continues to hold down prices for many corporations.

And he noted that consumer sentiment, while it has been declining a bit, is pretty good when you compare it to the average growth rate of the economy. All and all, the Fed chairman sort of hinted that he will be ready to cut interest rates more if needed -- Natalie.

ALLEN: Coming up in March. We'll have to wait and see what happens then. Fred Katayama, thanks, Fred.

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