Stronger U.S. recovery predicted Federal Reserve chairman shows unexpected optimism.

June 05, 1991|By OSAKA, Japan

Reuter -- OSAKA, Japan -- Federal Reserve Chairman Alan Greenspan said today that the odds are rising that the U.S. economy could bounce back from the 11-month recession at a stronger rate than many expect.

"The probability of a stronger-than-expected recovery is rising slightly," he told reporters at the International Monetary Conference here. The meeting brings together bankers from around the world.

It was one of the most optimistic assessments by the Fed chairman since the recession took hold and seemed at odds with projections by many economists for a tepid U.S. recovery in the second half of the year.

D8 Greenspan said he based the reading on U.S. economic

indicators released over the past 10 days that showed increased stability as the economy tries to climb out of the first recession in eight years.

In another bright sign for the economy, Greenspan said inflationary pressures appear to be receding even as the recovery takes hold.

Greenspan's comments lifted the dollar, which gained in Asian and European trading overnight and continued to rise at the New York opening. A stronger economy makes U.S. holdings more attractive, leading dealers to buy dollars.

The dollar stood at 1.7480 German marks and 139.15 Japanese yen at the New York mid-session, up from 1.7450 and 138.80 at yesterday's close.

Treasury bond prices also lost ground, since traders thought the Fed would keep a steady grip on interest rates.

The benchmark 30-year U.S. Treasury bond was down half a point at midday, or $5.00 per $1,000 face amount, raising the yield to 8.38 percent from 8.34 percent yesterday.

Although the Dow Jones industrial average has eased from its record high Monday, U.S. investors are still convinced that an economic rebound is in the works.

Greenspan's comments only fueled the fire.

Over the past 10 days, a number of economic indicators have turned upward, pointing the way out of the depths of the winter recession. Among them:

* The U.S. government reported that its main economic forecasting gauge rose in April for a third straight month.

* U.S. factory orders -- a barometer of manufacturing health -- scored their first rise in six months in April.

* U.S. unemployment claims declined in mid-May.

* A broad-based index from U.S. purchasing managers showed the economy's slump slowed in May.

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