“Federal Reserve Chairman Alan Greenspan gave his first hint that his aggressive campaign to revive growth this year should soon pay off,” writes Greg Ip in today’s Wall Street Journal.

“But in a speech Thursday night in New York, he also outlined a litany of risks to the economy, and he took pains to discount emerging inflation concerns, suggesting that the Fed won’t decide soon to stop cutting rates.”

” ‘The period of sub-par economic growth is not yet over, and we are not free of the risk that economic weakness will be greater than currently anticipated, requiring further policy response,’ he said. ‘But we also need to be aware that our front-loaded policy actions this year should be providing substantial support for a strengthening of economic activity later this year.’ “

“The speech was Mr. Greenspan’s first detailed remarks on the economic outlook since early March and the first in which he indicated when he expected a recovery to begin. The Fed has cut the federal-funds rate to 4% from 6.5% in five half-point moves since early January, the last on May 15.”

“Echoing the statement that accompanied that move, Mr. Greenspan said pressure on profits was ‘unrelenting,’ and the demand for capital equipment was ‘problematic.’ Though he downplayed the threat of higher gasoline prices and said consumer spending hasn’t been ‘unduly’ soft, he also said there are ‘downside risks to consumer spending over the next few quarters’ as reduced stock wealth restrains spending. The Fed chief added that ‘consumer sentiment, while having stabilized recently, remains fragile.’ “

“As for inflation, ‘The lack of pricing power reported overwhelmingly by business people underscores an absence of inflationary zest … With energy inflation probably peaking and the easing of tightness in labor markets expected to damp wage increases, prices seem likely to be contained.’ “

“Mr. Greenspan was less upbeat than some fellow Fed officials have been in recent weeks, and his relatively sanguine outlook on inflation contrasted especially with that of fellow Fed governor, Laurence Meyer, who earlier Thursday said the Fed, in trying to counteract economic weakness, had to ‘avoid overshooting.’ “

“Mr. Greenspan’s tone may have been aimed in part at reassuring financial markets, especially bond investors, who have shown signs of worrying anew about inflation and the possibility that the Fed will soon have to reverse course.”