U.S. Federal Reserve Board chairman Alan Greenspan refrained from signalling a rate cut in Wednesday’s congressional testimony.

“In providing a relatively optimistic outlook for the economy in testimony before Congress today, Fed Chairman Greenspan did not give the green light for another interest rate reduction at the upcoming policy meeting on June 24/25,” says Bank of Montreal.

RBC Financial also observed that Greenspan did not step up his deflation warnings, saying only that the near-term risks of deflation were greater than of excessive inflation at this time, supporting the Fed’s easing bias. “Reflecting the cautious nature of the comments bonds were relatively flat after Greenspan’s testimony, though bonds caught a bid on heightened terrorism fears,” it says.

RBC also noted that Greenspan again said it was too soon to make a judgment on whether the economy was deteriorating or recovering since the war because most of the data released since then have been somewhat muddied by war concerns while the few data points truly free of war-related influence have been getting better.

“Despite recent disappointing data on production and employment, Greenspan remains hopeful about the prospects of an economic revival. He attributes most of the weakness in the recent data to business decisions made prior to the Iraqi war,” said BMO. “As well, he is optimistic that improved conditions since the end of the war lower oil prices, narrower risk spreads, rising consumer confidence and equity prices, and a growing backlog of orders will lead to a sustained recovery of the ‘resilient’ US economy.”

“Greenspan’s prognosis is consistent with our view that the economy will strengthen in the period ahead,” BMO concluded. “This should discourage further rate cuts and keep the Fed on hold for the remainder of the year.”