SECTION: MONEY; Pg. 1B

LENGTH: 448 words

HEADLINE: Fed chief: Fallout really not that bad

BYLINE: Thomas A. Fogarty

DATELINE: WASHINGTON

BODY:
WASHINGTON -- Federal Reserve Chairman Alan Greenspan says higher business costs in the new age of terrorism are a one-time hit that shouldn't permanently impair the U.S. economy.


Since Sept. 11, Greenspan told a congressional panel Wednesday, business has been repricing goods and services to cover increased costs. The causes: higher insurance premiums, increased security, more back-up systems and more inventory as a hedge against disruption in delivery.
Said Greenspan: "When complete, (these) represent one-time, level adjustments without necessary implications for our longer-term growth prospects."


Wall Street, rattled by anthrax scares, took no solace from Greenspan. The Dow Jones industrial average closed down 151 points.


Greenspan offered no opinion on whether the economy is in recession. But elsewhere, Lawrence Lindsey, President Bush's chief economic adviser, told a business group that he expects the downturn to meet the official definition of a recession: consecutive quarters of economic contraction.


In his testimony before the Joint Economic Committee, Greenspan said most sectors appear to be regaining the ground lost in the immediate aftermath of the terrorism.


"It seems that it is nowhere near as bad as many of us feared it would be," he said.


The central bank chief endorsed the idea of a government reinsurance program -- insurance for the insurance companies -- for catastrophic losses because of terrorism. Such a program would provide an antidote to uncertainty.


But Greenspan declined to promise dramatic results from a Fed monetary policy that has produced nine reductions in the target for short-term interest rates this year. Despite the rate cuts, the U.S. economy has failed to rebound.


He told lawmakers that the effect of the Fed policy may now be playing out in an economy that dropped sharply, then stabilized. "The economy has remained standing," Greenspan said.


Greenspan declined to be drawn into partisan squabbles over the size and contents of a pending economic stimulus package. But he offered lawmakers some broad guidelines on it:


* Emphasize proposals that encourage capital investments by business.


* Don't confuse long-term policy changes with short-term stimulus. For example, he said, a capital gains tax cut may be advisable for long-term benefit but won't spark an immediate rebound.


* Public works projects may deliver votes in the next elections but most have limited value in jump-starting economic growth.


* Any large, inflationary package could drive up interest rates, which, in turn, could stifle the ongoing wave of home refinancing.


LOAD-DATE: October 18, 2001