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Change unlikely in interest rates


NEW YORK -- Federal Reserve Chairman Alan Greenspan said last night that he was reluctant to cut short-term interest rates right away despite an increased risk of a mild recession.

In the strongest statement of his intentions since economic growth began to stall earlier this year, Mr. Greenspan said it was "uncertain" whether the country would slip into a recession in the next few months.

But in an open acknowledgment of the new constraints imposed by currency markets, he said it would be a mistake to stimulate business activity by reducing rates if that led investors to pull money out of the United States, weakening an already shaky dollar.

Mr. Greenspan left open the possibility of a cut in interest rates later this year if more signs emerged that the economy is heading into worse trouble or if Congress passes a budget that would significantly narrow the federal deficit.

And he also hinted at possible dissension within the Federal Reserve committee that sets short-term rates; that panel is scheduled to meet July 5 and 6.

A few members of the panel have publicly expressed concern that the economy is now in considerably worse shape than they had expected it would be after seven rate increases during the 12-month period that ended Feb. 1.

Still, Mr. Greenspan is widely thought to have the influence to ensure that short-term rates will fall only if he wants them to.

"Of one thing I am certain: Our Federal Open Market Committee meeting in a couple of weeks will be most engaging," Mr. Greenspan said. "I am also confident that the consideration given to the stance of policy will be in the context of our longer-term goal of price stability. A consistently disciplined monetary policy is what our global financial system increasingly requires and rewards."

Mr. Greenspan's remarks on the growing force of international currency markets represented a break from decades of Federal Reserve policy, in which domestic considerations were given primacy, at least publicly.

"While there are many policy considerations that arise as a consequence of the rapidly expanding global financial system, the most important is the necessity of maintaining stability in the prices of goods and services and confidence in domestic financial markets," he said. "Failure to do so is apt to exact far greater consequences as a result of cross-border capital movements than those which might have prevailed a generation ago."

The Federal Reserve chairman's resistance to reducing short-term interest rates is likely to disappoint both the Clinton administration and the financial markets.

The Fed chief's comments came as the government reported that housing starts had fallen in May for the fourth month out of five.

The Commerce Department report said construction of both single- and multi-family housing fell 1.3 percent in May to a seasonally adjusted 1.24 million annual rate.

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