Greenspan-Attacks to disrupt economy, foundation solid

Greenspan-Attacks to disrupt economy, foundation solid By Glenn Somerville

WASHINGTON (Reuters): The U.S. economy "ground to a halt" after last week's attacks and will suffer disruptions for a time, Federal Reserve Chairman Alan Greenspan told Congress on Thursday, but he expressed confidence that the foundations are intact and recovery was assured.

"The shock of Sept.11, by markedly raising the degree of uncertainty about the future, has the potential to result, for a time, in pronounced disengagement from future commitments," the Fed chief told the Senate Banking Committee in his first public appearance since the attacks.

"Indeed, much economic activity ground to a halt last week," he said in remarks that appeared to do little to halt selling on Wall Street. "But the foundations of our free society remain sound, and I am confident that we will recover and prosper as we have in the past."

But, President George W. Bush on Friday put a brave face on the economic outlook, declaring that while terrorists had attacked a symbol of American prosperity they had not touched its source.

"America is successful because of the hard work and creativity and enterprise of our people," said Bush in a speech to a packed congress. "These were the true strengths of our economy before Sept 11, and they are our strengths today."

Greenspan and Treasury Secretary Paul O'Neill together urged lawmakers, who are worried about how to help large and small businesses suffering because of last week's dislocations, not to rush into new stimulus measures before the full impact of last week's events becomes clear.

"I would strongly suggest that while there is an obvious strongly desired sense to move rapidly, that it's far more important to be right than quick," Greenspan said. But he added: "That does not mean that future actions are not going to be required."

O'Neill said options under consideration included cutting taxes on capital gains from stock sales but, like Greenspan, he suggested moving in a measured way "to make sure that in the name of trying to do right that we don't actually do damage."

Both the U.S. central bank chief and O'Neill were at pains to emphasize that prospects for the world's No. 1 economy were sound and that financial markets were working.

"Our economy -- our prosperity -- will not be destroyed," O'Neill said in prepared remarks to the committee, while conceding that, "we cannot say at this very preliminary stage exactly how these events will affect the economy."

Testimony from the nation's top economic policymakers failed to stem losses on U.S. stock markets as worried investors drove the Dow Jones industrial average down by about 300 points. Since stock trading resumed on Monday -- after a four-day halt following the attacks -- the blue chip index has plunged more than 10 percent as of Wednesday's close.

The index had racked up another 3 percent in declines as of midafternoon on Thursday.

Greenspan offered no hints to lawmakers about whether the Fed was considering further rate cuts, but analysts predict more are coming. The policy-making Federal Open Market Committee next meets Oct. 2.

The Fed chief said elements for a recovery in the already shaky U.S. economy were present before last week's attacks. The economy barely grew at a 0.2 percent annual rate in the second quarter but it still had some resilience.

"The system was holding up...The American economy kept getting battered and battered and battered and it was still standing and indeed, as of Sept. 10, it was still standing," Greenspan noted in a clear bid to give consumers faith in a future rebound.

O'Neill, who has been urging investors all week to "buy American," said the best thing ordinary citizens could do would be to carry on normally to help the nation back to its feet.