Wall Street stocks soared today, with investors banking on Federal Reserve chairman Alan Greenspan's hints when he spoke before the Senate Budget Committee tody that a U.S. interest rate cut was imminent.
Internet stocks shot up as well, with Web portals Excite and Yahoo up 33.04 percent and 14.51 percent, respectively. Excite's surge followed an announcement that it was teaming with Dell Computer and AT&T's WorldNet service to provide a personalized start page for Dell customers logging on to the Internet. Dell stock also was up, closing the day with a 7.18 percent gain.
Investors were hoping that Greenspan's hints that the Fed may lower interest rates would help calm jittery world markets. Indeed, Greenspan spoke today before the Senate Budget Committee and said that global financial turmoil would be more than enough to curb U.S. inflation, a signal he may push for an interest rate cut as early as next week.
Every time Greenspan speaks, investors hope for a rate cut, but they were especially optimistic today given the proximity of a Federal Reserve interest rate policy meeting on September 29.
In the eagerly awaited testimony to the Budget Committee, Greenspan noted that the crisis in foreign economies had deteriorated considerably since the U.S. central bank's policymaking committee last met on August 18. There was no sign the crisis was letting up, he said.
"By mid-August the committee believed that disruptions abroad and more cautious behavior by investors at home meant that the risks to the expansion had become evenly balanced," Greenspan told the panel. "Since then, deteriorating foreign economies and their spillover to domestic markets have increased the possibility that the slowdown in the growth of the American economy will be more than sufficient to hold inflation in check."
Economists noted that Greenspan's comments, which went further than previous remarks in stressing the dangers from the declining global situation, suggested the central bank chief was prepared to argue for lower interest rates at the Fed's policymaking meeting on September 29.
The U.S. central bank has held back from cutting interest rates because of tight labor markets, fearing an upsurge in inflation was a bigger risk than the drag on the economy caused by the global financial crisis. U.S. official rates have been unchanged since March 1997, with the key federal funds rate at 5.5 percent.
Greenspan emphasized in his testimony that the world's financial problems were far from over and that policymakers around the globe needed to be sensitive to the crisis. "There is little evidence to suggest that the contagion has subsided," he said.
The Fed chief pointed out that the problems in overseas financial markets had hurt the U.S. stock market and appeared to have prompted banks to become more cautious in their lending.
Greenspan acknowledged that so far the there had not been a major drag on the U.S. economy from the crisis abroad and noted the job market was still strong.
"However, looking forward, the restraining effects of recent developments on the U.S. economy are likely to intensify," he said.
Reuters contributed to this report.