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Markets 'Working Well,' Says Fed Chief

"When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said. "For example, in the U.S., profit margins . . . have begun to stabilize, which is an early sign we are in the later stages of a cycle.

"Yes, it is possible we can get a recession in the latter months of 2007," Greenspan said. He added, however, that most analysts were not forecasting a recession.

Greenspan's comments elicited no significant reaction in financial markets when they were reported Monday morning. But his words loomed larger in many traders' minds during Tuesday's stock sell-off and after the latest weak economic data was released yesterday.

Robert Barbera, chief economist of ITG, a financial advisory firm, said it is hard to ignore what Greenspan says.

"Bernanke speaks as a top-elite economist," he said. "But . . . Greenspan is a creature of the markets, and as a fellow creature of the markets, I tend to agree with him."

Alfred E. Goldman, a senior market strategist for A.G. Edwards, said he's learned to trust Bernanke.

"Who is the better forecaster? If you held a vote people would say Greenspan because he was an icon for so long," he said. "But remember he doesn't have access to as much information as Bernanke has now."

Some observers questioned Greenspan's judgment in commenting on a possible recession, knowing well that his views are still closely followed.

"I do think it was somewhat inappropriate," said Kenneth H. Thomas, a finance professor at the Wharton School of the University of Pennsylvania, who has written extensively on the Fed and Greenspan. "Bernanke is still relatively new. Greenspan had 18 years as Fed chairman and is an icon of sort. . . . He still has a tremendous impact on the markets. It makes life harder for Bernanke."

Beyond concerns about a possible recession in the United States, analysts saw other troubling signs in Tuesday's frenzied sell-off. They said they were less worried about stock prices, which seemed ripe for a correction after a breathless run-up, than that the global economy showed signs of vulnerability.

Tuesday's stock-market fall was triggered by a 9 percent sell-off in China. Some economists were alarmed that China's markets, which are prone to rampant speculation and wild swings, could have such an impact on the world stage.

"It is interesting to note that all of this started in China," said Charles M. Jones, a finance professor at Columbia Business School. "If you went back 10 years . . . China was just not on the global economic map. This time when China sneezed, everybody else took notice."

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