It’s not the economy, stupid: It’s Iraq.
That’s what Federal Reserve Chairman Alan Greenspan suggested yesterday in his semi-annual testimony before Congress’ Joint Economic Committee.
“Although economic growth was relatively well maintained over the past year, several forces have continued to weigh on the economy, [including] heightened geopolitical risks,” Greenspan said.
As Greenspan was speaking, Iraq said it would allow U.N. weapons inspections, and the markets rallied. By the closing bell, however, stocks had pared their gains, with the Dow Jones industrial average up only 12.49 to 8,398.49.
Wall Street gurus attributed the fall-off to a growing consensus throughout the day that the Fed is through with cutting rates.
“Greenspan noted that while the economy has hit a soft spot, the Fed expects growth to pick up,” said Gerald Cohen, senior economist at Merrill Lynch. “Unless more shocks hit the economy in coming months, we believe the Fed is done cutting rates.”
Greenspan as much as said so.
“It is the case that while the economy is softening or stagnant, there is no evidence … at least up to the moment, that it is accelerating on the downside,” the Fed chief said during questioning by lawmakers. “What we do have is a very large degree of uncertainty.”
“So if I were to assume that the outlook is exactly what the most probable path is, then I would say no additional stimulus is necessary,” he said.
Broader market averages had a mixed day.
The technology-packed Nasdaq composite index added 11.78 to 1,361.34, but the S&P 500 fell 0.42 to 882.53.
Many of the most widely held stocks had up days, including Microsoft, up 85 cents to $55.36 and Cisco, up 55 cents to $13.42. An exception was Citigroup, which fell $1.39 to $35.00.