In his speech on the farm economy to the Independent Bankers of America, Greenspan focused on one of the few economic sectors that has missed out on the prosperity the broader economy has enjoyed in recent years.
The central banker repeated his balanced statements on the economy as a whole, saying, "The economy appears stretched in a number of dimensions, implying considerable upside and downside risks to the economic outlook," Greenspan said.
His speech comes just two weeks before the central bank's rate-setting Federal Open Market Committee meets to discuss monetary policy. Most Fed watchers don't expect any changes, given the balanced view in Greenspan's Humphrey-Hawkins testimony and in his recent comments.
Looking at the farming sector, Greenspan noted dramatic declines in prices of corn, wheat, soybeans, hogs and dairy products. However, the Fed chairman said many farmers have been able to reduce their own costs as part of the economy-wide push for greater productivity.
More important to his audience, Greenspan said farmers are generally making scheduled loan payments.
"Commercial banks that are active in farm lending appear to have suffered little or no diminution of their profits this past year because of the increased difficulties in farming," he said. But the sector bears close scrutiny, he said.
Greenspan diverged from his prepared text at the end, cautioning Congress to carefully consider the safety and soundness of the banking system when it moves to rewrite the financial regulatory laws.
Greenspan and the Fed strongly favor allowing banking holding companies to be allowed to conduct some nonbanking activities like insurance and stock underwriting. The administration favors a more flexible approach that would allow such activities to take place in operating subsidiaries of national banks.
Greenspan assured his audience that the Fed is listening to the problems of the farm belt and noted that the Federal Reserve Bank of Kansas City has created a new research unit on rural America. He pointed out, however, that farmers shouldn't expect any favors from the Fed: "Monetary policy decisions, of course, must be directed toward what is deemed to be the best path for the economy as a whole," he said.
Higher interest rates would hurt farmers, but it wouldn't devastate them, either, since export demand is so low already. The chief effect, by strengthening the dollar, would make U.S. goods costlier on world markets.
And lower rates, in turn, wouldn't help the farmer that much, either. Demand for farm products isn't being held down by high rates or low aggregate demand in the United States. Lower rates would help on the foreign-exchange front eventually, however.
A Greenspan speech wouldn't be coplete without an homage to technology. He said farmers are continuing to drive their costs lower through use of biotechnology and farm-specific applications of computing.
Written By Rex Nutting & Brenon Daly, CBS MarketWatch