WASHINGTON - Federal Reserve Chairman Alan Greenspan proved once again that he is the master of obfuscation when it comes to telling anybody where interest rates are headed.

Mr. Greenspan's speech last week to the Economic Club of New York, an elite audience of academics and Wall Street traders, left everyone guessing about what the Fed is up to.

The Washington Post reporter who attended the event wrote an account headlined "Greenspan Hints Fed May Cut Interest Rates." The New York Times saw it differently with an article headlined "Doubts Voiced by Greenspan on a Rate Cut."

Before heading to New York, Mr. Greenspan told a congressional panel that the economy probably saw "very little" growth from April to June and may have actually contracted slightly. With the economy at a halt, at least temporarily, bond market expectations are mounting that Fed officials will signal an easier stance on credit by trimming short-term interest rates when they meet July 5-6.

Mr. Greenspan did say that he and his colleagues on the 12-member Federal Open Market Committee will consider lowering rates. He admitted that the chances of a recession have increased, and he said inflationary pressures - which the Fed watches more than anything else - have eased.

Fed Vice Chairman Alan Blinder and Fed Governor Janet Yellen have argued that the risks to the economy are weighted more to the downside. That suggests both appointees of President Clinton will argue for cutting rates.

Mr. Blinder has said repeatedly that the Fed must act preemptively not only to raise rates to fight inflation - which the Fed did last year - but to lower them when the economy appears to be weakening.

Other Fed officials, however, have said they believe the economy will pick up steam in the second half. They believe that the sluggishness in retail sales and the buildup in business inventories are only temporary events. That would suggest they don't believe action by the Fed is necessary.

Mr. Greenspan himself did not seem too troubled by the economy's slowdown. He said that business inventories, while rising, are not piling up and that consumers are being buoyed by ample credit and strong stock and bond markets that have boosted household wealth.

On Wall Street there is plenty of anticipation that a move by the Fed will come in July, especially if the June employment report due out of the Labor Department on July 7 is weak. Businesses have already cut payrolls in April and May.

"The financial markets have given the Fed a green light to ease," said William Sullivan, senior vice president for Dean Witter Reynolds. He notes that the dollar has stabilized on foreign exchange markets, the stock market is flying high, and market interest rates have fallen across the board.

Indeed, while the Fed has been keeping the overnight federal funds rate for banks at 6%, since the beginning of the year the yield on the Treasury's 30-year bond has fallen from 7.93% to 6.54% as of Wednesday morning. The yield on one-year Treasury bills has dropped from 7.23% to 5.62%.

It is now up to Mr. Greenspan and his Fed colleagues to decide if they wish to validate the bond market's belief that lower rates are justified. If they decide to stand pat, disappointed bond traders are likely to sell and nudge market rates back up.

Mr. Davies is Washington bureau chief of Munifacts, an affiliate of the American Banker.

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