Fed chairman optimistic

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Thursday, Jan. 24, 2002 | 10:01 a.m.

WASHINGTON -- The U.S. economy is beginning to show signs of growth, and a rapid reduction in business inventories may produce a "significant" boost to income and spending, Federal Reserve Chairman Alan Greenspan said today.

"There have been signs recently that some of the forces that have been restraining the economy over the past year are starting to diminish and that activity is beginning to firm," Greenspan told the Senate Budget Committee.

Inventory reduction "remained sizable" in the fourth quarter, even outside of automobile stocks, he said. "Hence, with production running well below sales, the potential positive effect on income and spending of the inevitable cessation of inventory liquidation could be significant," Greenspan said.

Stocks were higher and Treasury securities fell after the Fed chairman gave his outlook, which suggested the central bank may not lower interest rates again when its policy-making Open Market Committee meets Tuesday and Wednesday. The Fed reduced the benchmark overnight bank lending rate 11 times last year to a 40-year low of 1.75 percent.