In an assessment of the US economy less gloomy than expected, the Federal Reserve chairman, Mr Alan Greenspan, said that, while the country still faced the danger of a serious downturn in the coming months, it was not in recession.
In testimony on Capitol Hill, the most senior US banker confirmed that the economy had almost skidded to a halt. He said growth was close to "stalling out" at the start of the year and that "for the period ahead, downside risks predominate".
Wall Street initially reacted with enthusiasm to Mr Green span's assessment, mainly because it did not seem to upset predictions that the Federal Reserve will continue to cut interest rates aggressively to prevent a worsening economy sliding into recession.
But paradoxically, as the positive aspects of yesterday's economic news were digested, stocks on Wall Street fell sharply, with the Dow closing 51 points down after surging 60 points earlier and breaking the key 11,000 level. The technology-dominated Nasdaq plunged 62 points to end at its lowest level since January 8th.
The most significant sign that some economic activity had actually picked up in January came from consumer spending statistics issued yesterday. Retail sales surged by a strong 0.7 per cent in January, the biggest increase since September and a strong improvement on a 0.1 per cent December gain.
Mr Greenspan injected a few positive notes. He told Congress: "The exceptional weakness so evident in a number of economic indicators towards the end of last year apparently did not continue in January."
The surge in productivity growth which began four years ago was continuing, and most corporate managers were still optimistic about the future returns from new technology.
The biggest risk, he made clear, was the effect of an uncontrollable surge of pessimism among consumers, unleashed by a downturn which had occurred much faster than businesses had anticipated.
In previous recessions this process, "built up by fear", behaved like water backed up in a dam, he said. When breached "the torrent carries with it most remnants of certainty and euphoria that built up in earlier periods."
In response to questions from senators about whether the US was already in recession, Mr Greenspan assured them that "at the moment we are not" in a full-blown downturn.
He also rejected suggestions by Republicans that the first stage in a $1.6 trillion tax cut, by being made retroactive to the beginning of the year, could stop a recession.
"If a recession is going to happen, and I must say to you it is not happening yet, it is very unlikely that tax policy could be implemented quickly enough to prevent the downturn from occurring," he said.
His comments about continued downside risks were taken as a clear signal that the Fed, which has already reduced interest rates by a full percentage point this year, is ready to do more to combat the threat of a recession.
Analysts predicted that as the Federal Reserve saw the risks weighted in the direction of economic weakness, there would be further rate cuts following the two reductions amounting to one decimal point in January. The stock market expects the Fed to cut rates twice more by one-quarter each time, at its regular meetings in March and May.