The Fed chairman did caution that the economy will not rebound overnight, and probably will not return to the heights of the late 1990s for some time.
Sounding more positive than he has in months, Greenspan cited several positive statistics, especially recent strong gains in consumer spending.
“In the past several months, increasing signs have emerged 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 said during his semiannual economic forecast before the House Financial Services Committee.
The recession, which began last March and was affected by the Sept. 11 terrorist attacks, is shaping up to be one of the mildest in U.S. history, Greenspan said.
He told Congress the hopeful indicators have led Fed policy-makers to end their aggressive campaign of cutting short-term interest rates.
Greenspan said the central bank predicts the economy will grow by 2.5 to 3 percent this year, about half the pace of a normal rebound from a recession. He added that a slow rebound will probably mean that the Fed will not raise interest rates in the near future.
The prime rate, the benchmark for many business and consumer loans, is expected to remain at the 36-year low of 4.75 percent until at least midyear.
Greenspan said one of the ameliorating factors was advances in computer technology that allowed companies to adjust quickly to changing economic conditions.
However, the Fed chairman noted that the collapse of energy giant Enron underscores how fragile companies can be when they rely not on real amounts of production, but on less tangible services, such as energy trading.
“Trust and reputation can vanish overnight. A factory cannot,” he said.