Monday, February 26, 2007
Andrew Farrell, 02.26.07, 1:18 PM ET
Pessimism from former Federal Reserve Chairman Alan Greenspan and a prominent business economics group spooked investors into buying Treasuries Monday.
Greenspan told Hong Kong businessmen Monday that the United States economy has grown since 2001 but that signs indicate a recession is nearing, possibly as soon as the end of this year.
"When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign," said Greenspan. "For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle."
"While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown," he said.
The former Fed chairman left office early last year after having run the central bank since the summer of 1987. Following the bursting of the stock-market bubble in 2000 and the terrorist attacks on Sept. 11 of the following year, Greenspan orchestrated a reduction in short-term interest rates that took overnight loans down to 1%, helping the United States overcome a short recession.
His comments came as the National Association for Business Economics predicted the United States' would experience the slowest economic growth in 2007 in five years.
A poll of economist conducted by the association predicted U.S. gross domestic product to grow by 2.7%, the weakest since 2002, when it grew 1.6%.
With recession concerns raised, investors bought Treasury bonds, pushing the yield on the benchmark 10-year issue down to 4.62% from 4.67% late Friday.
Stock prices weakened, despite several major acquisitions. The Dow Jones industrial average lost 0.1%, or 15.22 points, to 12,632.26, while the Nasdaq Composite, which is heavily weighted to technology and small-company stocks, fell 0.4%.