US Federal Reserve chairman Mr Alan Greenspan will seek to calm congressional concern over recent market turmoil in the wake of a series of big corporate scandals when he testifies before the Senate banking committee tomorrow.
The slide in stock and currency markets follow corporate accounting scandals involving Enron, Arthur Andersen, Xerox, WorldCom and others.
Last week the Dow Jones industrial average plummeted 7.4 per cent and has lost 20 per cent of its value since March. Likewise the Standard and Poor's 500, recognised as a more representative sampling of New York Stock Exchange stocks, fell 6.8 per cent last week alone.
Since early July, consumer confidence has been off sharply, as calculated by the University of Michigan. Economists said the confidence surveys show there is a real danger of putting a break on household spending in the near future.
Some 80 million Americans have their retirement funds tied up in the stock market. Those 80 million are expected to rein in their spending to make up for value lost from their retirement portfolios.
In the face of such economic turmoil, Mr Greenspan will likely "reassure investors that Fed policy will counter any drag from falling equity prices and continue to foster a return of full employment," said JP Morgan economists in a research note.
Besides delivering his report on the health of the US economy, Mr Greenspan will surely take advantage of the intense media coverage that usually surrounds such hearings, to reassure US investors and the public that the US financial system remains solid despite the recent scandals.
According to economists, Mr Greenspan could also chide the markets for irrational pessimism, the flip side of the "irrational exuberance" term he coined when stocks were soaring in 1996 during the "new" economy.
AFP