Federal Reserve Board Chairman Alan Greenspan on Wednesday said he saw little evidence of a credit crunch, but warned the U.S. economy could still be bruised by global financial turmoil.
"We are far short of anything that could resemble a credit crunch in the United States," he told the National Association for Business Economics.
Mr. Greenspan conceded that the junk bond market has virtually dried up in the past two months, but said much of its recent activity was generated by companies refinancing junk bonds at lower rates. Now that junk bond rates have stabilized, there is little need for these companies to return to the market, he said.
"It is very difficult to find any (broader) real impact as yet," he said.
Lenders are tightening underwriting standards for larger borrowers, and the Fed has collected anecdotal evidence suggesting banks are demanding more collateral for some types of loans, he said. Credit standards for small business, however, are virtually unchanged, he said.
Mr. Greenspan generally praised the current performance of the U.S. economy and accused the media of overstating the effect problems around the world are having here right now. "We have an economy now which is really quite an impressive sight," he said.
Mr. Greenspan also said he does not see rising inflation, a comment several economists at the meeting took as a sign that the Fed was prepared to cut interest rates further in the coming months.
"There certainly is a willingness to ease again," said Diane C. Swonk, deputy chief economist at Bank One Corp.
Mark P. Vitner, vice president and economist at First Union Capital Markets Group, said the speech will lead him to slice by 50% his forecast of a 100 basis point cut in the Fed Funds. "He said the economy over all is in good shape," Mr. Vitner said.
Still, the Fed chairman emphasized that the current economic situation is "very fluid" and requires close monitoring.
"The outlook for 1999 for the U.S. economy has weakened measurably in the aftermath of the Russian devaluation and debt moratorium," Mr. Greenspan said.
Investors are seeking assets that are less risky and more liquid, he said. As a result, spreads between Treasury bills and other bonds have widened considerably in the last year.
"There has been a major shift to risk aversion around the world," he said. "We do not yet see the impact of this looming, scary, psychology."
Michael P. Carey, vice president and economist for North America at Credit Lyonnais, agreed with Mr. Greenspan's comments on credit availability. "For corporations here, there won't be a credit crunch," he said.
Lynn Reaser, chief economist at NationsBank Private Client Group, noted that bank lending actually rose in September as companies moved from the bond to the credit markets.
"This credit crunch talk has been overblown," agreed Bert Ely, president of the consulting firm Ely & Co. "It has been amazing how it has taken off."