By Evelina M. Tainer, Chief Economist, Econoday
7/20/01

Fed Chairman Alan Greenspan testified before the House Financial Services Committee on Wednesday and sparked a rally in the bond market. Greenspan was generally balanced in his comments, but he did indicate that economic activity was in the process of bottoming out and the Fed stood ready to ease further if necessary. While the Fed is always ready to lower interest rates if economic conditions warrant, Greenspan implied that the risk for conditions ahead was still negative. The Fed chairman indicated that while the CPI showed some signs of upward creep, other price measures such as the personal consumption expenditure deflator remained stable. Bond investors rallied on Greenspan's comments because most had suspected that the June rate cut was probably the end for this cycle; now there is hope for another rate cut in August. Equity investors weren't as happy since a lack of healthy economic growth doesn't spell better corporate profits ahead.