WASHINGTON -- Federal Reserve Board Chairman Alan Greenspan said yesterday he sees no evidence of a "double-dip" recession and that the Fed's next move, possibly next year, should be a tightening aimed at securing further progress against inflation.
In his semiannual Humprhey-Hawkins testimony on monetary policy before the House Banking Committee, Mr. Greenspan rejected the arguments of some private economists that the economy could fall back into recession after a brief recovery because of stringent budgetary cutbacks by state and local governments, the continuing credit crunch, weak money supply growth, and other factors.
"I don't see the elements of a double-dip recession," he said. On the contrary, he continued, "there are compelling signs that the recession is behind us," and the recovery could even turn out to be "fairly robust" in the short term.
Mr. Greenspan said the "turning point" for the economy may have been in early spring, when "a variety of cyclical indicators bottomed out ... and some have moved noticeably higher in recent months."
But since the recovery could still "falter," he said, the Federal Open Market Committee at its semiannual meeting earlier this month decided to maintain its "flexibility" to re- to economic events by keeping the same money supply growth targets in 1992 that prevailed this year.
Pressed by the monetary policy subcommittee's chairman, Rep. Stephen L. Neal, D-N.C., as to whether the Fed will try to wipe out inflation, Mr. Greenspan said he thought the Fed is already "well on the path to achieving" that goal but that its next move should be to seek additional progress by further restraining money supply growth. He suggested that move could be as early as next year when the recovery is well under way, but he did not specify the timing.
Inflation in recent months has fallen to a 3.5% annual rate, and the Fed's own economic forecast released yesterday said it expects price increases to remain in the 3% to 4% range in 1992 and for the remainder of this year.
However, Mr. Greenspan said a desirable goal might be to reduce inflation to around 1.5%, which he said would allow some room for price increases in goods and services that are tied to qualitative improvements.
In the meantime, however, he said, the Fed must be mindful that the economy is still "a fragile system" and be content to allow the inflation rate to continue declining within the parameters of the Fed's current inflation targets. He said there was "no urgency" to push inflation below those targets at this time.
While downplaying the chance that state and local cutbacks could help the recession resume, Mr. Greenspan said "there is a fiscal drag on the economy" because of state and local budget ailments, and that more "sizable belt-tightening" at those levels is likely in the near future.
The Fed chairman stressed the importance of a more stable real estate market. "Since state and local governments derive significant revenues from property taxes, and those values are down, a goodly part of the recovery for state and local governments will come from a stabilization of real estate values," he said.
But he added that municipal governments may begin to see some relief as the economy rebounds and non-property tax receipts rise.
Just as Mr. Greenspan signaled a steady monetary policy for now, he said Congress and the administration should seek no further improvement in the federal budget deficit at this time, despite the administration's announcement yesterday that the deficit in fiscal 1992 could balloon to an unprecedented $348 billion.
"A substantial part of the deficit for next year by necessity is temporary," he said, to accommodate the one-time costs of closing failed savings and loans and banks, and paying for the Persian Gulf war.
However, he acknowledged that the flood of Treasury securities needed to finance the spiraling deficit in the next year will have a negative impact on the credit markets by keeping long-term interest rates "higher than we would like."