Federal Reserve Chairman Alan Greenspan told the Senate Budget Committee on Wednesday that the current global financial turmoil would be more than enough to curb U.S. inflation, a signal he may push for an interest rate cut as early as next week.

Few things -- perhaps the Bible, or the U.S. Constitution -- are as overly analyzed as even a remark by Greenspan, but economists say Greenspan's comments went further than previous remarks in stressing the dangers from the declining global situation. This, they say, suggested the central bank chief was prepared to argue for lower interest rates at the Fed's next policy making meeting on Sept. 29. In his eagerly awaited testimony, Greenspan noted the crisis in foreign economies had deteriorated considerably since the U.S. central bank's policy making committee last met on Aug. 18. There was no sign the crisis was letting up, he said.

``By mid-August the committee believed that disruptions abroad and more cautious behavior by investors at home meant that the risks to the expansion had become evenly balanced,'' Greenspan told the panel.

``Since then, deteriorating foreign economies and their spillover to domestic markets have increased the possibility that the slowdown in the growth of the American economy will be more than sufficient to hold inflation in check,'' he said, giving added emphasis to his words.

The real estate community welcomed the news of possibly lower rates.

"Lower rates can only further boost an already strong real estate market," said Ted Deutsch, public affairs director for the real estate division of Cendant Corp. (NYSE:CD), based in Parsippany, N.J.

Jeff Lubar, vice president and spokesman for the 700,000-member National Association of REALTORS®, agreed that lower rates translates into more home sales.

"We're always in favor of lower rates," Lubar said. "Better rates mean more home purchases."

Mortgage rates fell last week to the lowest level since Freddie Mac started keeping records in 1971.

The average interest rate on 30-year, fixed-rate mortgages dropped to 6.66% from 6.77%, Freddie Mac announced Sept. 17.

The previous record low was 6.74%, hit in late October of 1993. A year ago, the 30-year rate averaged 7.38%, according to Freddie Mac, the corporation chartered by Congress to buy mortgages from lenders and package them into securities for investors.

Wall Street, too, embraced Greenspan's hints at lower interest rates. U.S. stocks and bonds rose sharply at the news of the Fed Chief's comments, with dealers seeing his words as confirming their view that a U.S. interest rate cut was imminent.

The U.S. central bank has held back from cutting interest rates because of tight labor markets, fearing an increase in inflation was a riskier bet than the economic slowdown caused by the global financial crisis.

Since March 1997. U.S. official rates have been unchanged. The key federal funds rate stands at 5.5%. Greenspan emphasized in his testimony that the world's financial problems were far from over and policy makers around the globe needed to be sensitive to the crisis.

``There is little evidence to suggest that the contagion has subsided,'' he said.

The Fed chief pointed out that the problems in overseas financial markets had hurt the U.S. stock market and could be a harbinger of slower growth here, because, among other reason, banks have gotten tighter on lending.

``Lower equity prices and higher financing costs should damp household and business spending, and greater uncertainty and risk aversion may also lead to more cautious spending behavior,'' he said.

Published: September 23, 1998

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