Federal Reserve Chairman Alan Greenspan today told investors what they should have known already: the economy is on "reasonably firm footing" and the Fed plans to continue raising short-term interest rates at a "measured pace."
The "soft spot" that the U.S. economy experienced in the early spring has not developed into a more serious slowdown, the Fed Chairman added, "and underlying inflation remains contained."
Greenspan's remarks squelched Wall Street's hope that the Fed will soon stop boosting short-term interest rates, and markets pushed up long-term interest rates, which had fallen sharply earlier in the week. Rates on 10-year treasury notes, which had dropped as low as 3.9 percent, went back up to 3.98 percent in today's bond market trading, an increase of .05 percentage point.
While he was upbeat about the economy, Greenspan warned that overheated house prices could fall in some markets. He said interest-only loans "are developments of particular concern" and are pushing up house prices by encouraging buyers to speculate that prices will go still higher.
Mortgage interest rates last week fell to their lowest level since April, 2004, Freddie Mac reported today. Rates for conventional 30-year mortgages are down to 5.56 percent and 15-year loans, popular for refinancing are down to 5.14 percent.
Some Wall Street analysts had blamed Greenspan for mid-day selling sprees that swept the market the last couple of days, taking away strong gains from morning trading. Wall Street may have been worried about what Greenspan might say, but what he actually said did no harm to stock prices.
Today stocks held near the flat line until the text of Greenspan's congressional testimony was released at 10 a.m. and then moved up a bit. The Dow Jones industrial average gained 26 points to 10,503.02. The Standard & Poor's 500 stock index climbed 6 points to 1200.93. The Nasdaq Stock Market composite index gained 17 points to 2,076.91.