There are preliminary signs that the U.S. economy is beginning to stabilize after its sharp fourth-quarter plunge into recession, Federal Reserve Chairman Alan Greenspan said yesterday.

If those signs are right, "the worst is behind us," Greenspan said, although the Persian Gulf crisis still hangs over the economy.

The Fed chairman, speaking to Washington area businessmen at a Washington Post lunch, said it also appears that bankers are becoming more willing to make loans in a normal way -- without recently imposed constraints and requirements -- which could spell an end to the credit crunch that Greenspan said has been a major factor in causing the recession.

Greenspan, for the first time labeling the slump as a recession, said the economy declined at a 2 percent to 4 percent annual rate in the final three months of last year. Even if the worst is now over, the current quarter will still show a further drop in the gross national product, adjusted for inflation, he said.

He acknowledged that what happens to the economies of the United States and the rest of the world "for the rest of this year and next" will depend significantly on whether there is a war with Iraq and how long it lasts.

If the crisis ends favorably for the United States, he said, "it doesn't require very much imagination" to see a rebound of consumer and business confidence, which plummeted after the Aug. 2 invasion of Kuwait, badly damaging the economy.

Already, he said, "the downward pressure seems to have been drained and beginning in January you see a greater degree of stability {and} a fairly marked slowing in the rate of deterioration" in the economy.

But there is no certainty that the worst of the slump is over, Greenspan cautioned. The recession could still deepen substantially, he said, if the decline so far has damaged the economy is some "structural" way or if the serious weakness in some parts of the country, such as the Northeast, spreads to portions of the country where economic activity is stronger. Greenspan didn't explain what such "structural" damage might be, but that might refer to the possibility of deeper problems at banks, for instance, that would keep the credit crunch going.

"Fortunately, for the moment the evidence seems to confirm {that this is} a recession of moderate dimensions and not one of extreme difficulty," he said. If events in the Persian Gulf resolve themselves soon, the decline will flatten and the economy will see "emerging strength again sometime in the not-too-distant future," he predicted.

Earlier in the day, Greenspan met at the White House with President Bush, several senior administration officials and two top banking regulators to brief Bush on the current economic situation.

Greenspan's sense that the recession is likely to hit bottom this quarter is shared by some private forecasters, though many other economists have recently revised their predictions downward. Some private forecasts now show the recession continuing until the third or fourth quarter of this year with a total decline much larger than either Greenspan or Bush economists are expecting.

The Fed chairman's remarks suggested that with the impact of prior interest rate cuts still working through the economy, the Fed may not find it necessary to reduce rates much further to combat the recession. On the other hand, if evidence emerged of "structural" damage, a further drop in interest rates likely would be needed to help turn the economy around, Greenspan implied.

Greenspan said the Fed's efforts to keep the economy growing last year were frustrated by bankers' unwillingness to lend money without added constraints because of large losses at their institutions. With fewer loans being made, the cash supplied to the banking system by the central bank produced less growth of the money supply and thus less of a stimulus for the economy than the Fed intended, he explained.

"Our response has been in recent weeks to try to break the back of the crunch by increasing the profit margins of commercial banks, and we have done this by significantly lowering the cost of money to banks," the Fed chairman said.