How Now, Mr. Greenspan

For Wall Street, the anniversary of the terror attacks is more than a look back at some of the most frightening and sorrowful moments that the men and women who work in Manhattan's financial district have ever faced.

It's also a reminder of the severe economic damage caused by Sept. 11 and its subsequent impact on the stock market, which today turns its attention to the economic crystal ball, both in the person of Fed Chairman Alan Greenspan, and in the form of a batch of economic reports set to be released this morning.

Greenspan will be on Capitol Hill, answering questions posed at a House Budget Committee. As always, a big focus will be on whether the Federal Reserve Bank needs to further cut interest rates to stimulate business and consumer spending to help speed economic recovery, or whether such action could trigger inflation and its associated woes.

Greenspan and his questioners will have plenty of ammo in the form of data to use to bolster their arguments about what should be done, although the Fed Chairman, strictly speaking, does not have to take Congress' advice to heart when he and the Fed's policymakers sit down and make their decision.

Economic indicators due out today include the Labor Department's count of how many people applied for unemployment benefits, the Freddie Mac statement on mortgage rates and the FDIC's report on second quarter earnings for both commercial and savings banks.

Also stirring the waters, in Washington, will be a Senate Health, Education, Labor and Pensions Committee hearing on the economy and workers a year after the Sept. 11 attacks.

Wednesday, the Federal Reserve issued a report saying the U.S. economy coped with "slow and uneven growth" in late summer as manufacturers struggled with weak orders and retailers reported disappointing results from back-to-school sales.

Many analysts were struck by the gloomy tone of the central bank's latest survey, based on interviews by the Fed's 12 regional banks in August. The survey will be used by policymakers when they meet Sept. 24 to decide whether to change interest rates.

"It was a weaker report than I had expected them to put out," said David Wyss, chief economist at Standard & Poor's in New York. "We had a summer slowdown but more recently we have had signs of economic strength with the stock market coming back."

The report found that business activity had slowed in most parts of the country with "little or no gain in employment."

Most of the regional banks "indicated slow and uneven economic growth with mixed or scattered experiences across sectors of the economy," the report said.

While the bank could use the survey to justify further cuts, many economists said they expected the Fed will continue to hold rates steady, at a 40-year low, as they have done all year.

"The Fed is saying we are not out of the woods yet, but I don't think they will cut interest rates unless we got a big jump in the unemployment rate," said Richard Yamarone, economist at Argus Research in New York.

Analysts also noted a number of more upbeat assessments made recently by Fed regional bank presidents. More of the Fed's view of the economy was to come Thursday from Chairman Alan Greenspan in an appearance before the House Budget Committee.

Wall Street got excited last month about the possibility of additional rate cuts, but Fed policymakers left rates unchanged at their Aug. 13 meeting.

"The Fed thinks it has already done enough, regardless of the wishful thinking of investors," said Wells Fargo economist Sung Won Sohn.

Many economists have revised upward their forecasts of growth in the current quarter, some by a full percentage point to 3.5 percent, which would be far above the 1.1 percent growth rate recorded from April through June.

"Just because (Fed officials) tell us they are worried about weakness doesn't mean interest rates will be cut or the economy is faltering," said economist Joel Naroff of Holland, Pa. "The economy is growing. It is not expanding at a spectacular pace but there is no reason to panic."

The Fed cut rates 11 times last year as the country experienced its first recession in a decade and suffered through the Sept. 11 terrorist attacks. Since December, the Fed has left rates alone. The overnight borrowing rate for banks is at a 40-year low of 1.75 percent.

The Fed, however, did indicate last month last month that policy-makers had grown concerned about the strength of the recovery ahead. Analysts viewed this as a sign the Fed was prepared to lower rates this year if the pace of economic activity remained sluggish.

In the new Fed report, some manufacturing industries saw a rebound in orders, but the improvement was spotty: increased activity at auto and steel plants offset by continued weakness in high-tech industries.

Retail sales activity was mixed during August. Many regions reported strong sales of autos, home furnishings and appliances, but also slow sales of clothing and back-to-school items.

If the Fed should decide it needs to cut interest rates, it will have room to do so. The survey found few signs of rising inflation outside of sizable jumps in the cost of health insurance.

Drought conditions affected crops and livestock in the West and along the East Coast.

The fallout from the attacks continues to be felt by travel industry: Hotels reported shorter stays by vacationers and airlines said business travel is still down, according to the Fed.