It will be some months before the extent of the US economic slowdown becomes clear. So far, the signs are that growth has slowed sharply but that the economy is not in recession. However, as Mr Alan Greenspan, the chairman of the Federal Reserve Board put it yesterday - using language typical of a central banker - the "downside risks predominate." In other words, there is still a danger that the US could slide into a nasty recession.
For the moment, the Federal Reserve Board (Fed) has steadied nerves. It announced two interest rate reductions last month, cutting borrowing by a full percentage point in total. While warning of the dangers ahead, Mr Greenspan also pointed out yesterday, in testimony to Congress, that the economy is still growing. He said that activity levels in manufacturing could pick up again later this year, once businesses have disposed of excess stocks built up due to the unexpectedly sharp fall in consumer demand. Retail sales figures for January, published yesterday, and showing a 0.7 per cent monthly increase, also went some way to calming fears.
The Fed chairman warned that it was still possible that a rocky few months could lie ahead. Asked whether the economy was in recession, he replied: "At the moment, we are not." However, he warned that the transition to a slower rate of growth might not be a smooth one. He hinted that the Fed could reduce interest rates again; most commentators expect another cut to be announced after its next meeting on March 20th.
Mr Greenspan also restated his broad support for the plan of the new Bush administration to announce a $1,600 billion programme of tax cuts, thus annoying Democrats. In carefully nuanced comments on the tax cutting policy, he appeared to be saying that lower taxes might be helpful if growth were to slow further and would not do much to fuel inflation if the economy remained more buoyant.
Despite the calm with which the financial markets greeted Mr Greenspan's testimony, a couple of nervous months lie ahead. A number of the major US technology firms are cutting jobs internationally, while the Internet sector remains in deep trouble. The level of consumer confidence also remains uncertain. A further dip in the markets could quickly knock-on to lower consumer demand. In turn this could affect the business sector and set off a negative cycle of falling share prices and declining demand. The confidence of international investors in the US must also be maintained - their flow of funds into the US is essential to finance a high current account balance of payments deficit.
Mr Greenspan said there was a "low probability" of a slump into prolonged recession. At the moment, this seems a fair assessment. It is also good news for the Republic's economy. Some slowdown in US growth would be no harm from the Irish viewpoint, helping our economy to adjust to a lower and more sustainable rate of growth. However, a sharp slump across the Atlantic would illustrate, all too quickly, the extent of our economic reliance on the US.