By Caren Bohan
WASHINGTON, April 27 (Reuters) - The U.S. economic recovery has yet to come into bloom and any number of uncertainties -- geopolitical and otherwise -- lurk in the woods, but Federal Reserve Chairman Alan Greenspan has a few reasons for guarded optimism about the future.
For one thing, the 77-year-old Fed chief's own job security is no longer in doubt.
Greenspan's current term at the helm of the world's most powerful central bank expires in mid-2004 but President George W. Bush last week signaled an intention to renew it.
The vote of confidence came as Greenspan was recovering from an apparently successful operation to treat a prostate problem that the Fed says is not serious.
On the economic front, first-quarter growth was slow, but glimmers of hope surfaced last week with a reported jump in consumer confidence and a pickup in durable goods orders.
With the war in Iraq all but over, gasoline prices have retreated and stock prices are doing a bit better.
The Fed chairman may highlight such positive signs when he testifies this week before the House of Representatives Financial Services Committee on monetary policy, a subject that always commands the world's ear.
But the ever-cryptic Greenspan will avoid being pinned down on where interest rates are headed.
"He will leave it an open question as to what the Fed is going to do," said Ed McKelvey, an economist at Goldman, Sachs and Co. in New York. "The Fed is not disposed to easing rates, but it's not at the point of ruling that out either."
The Fed has held rates steady this year after a dozen cuts since the start of 2001. The key federal funds rate stands at a low unseen since the early 1960s.
STILL ON HEIGHTENED ALERT?
While Greenspan is sure to cite some of the more reassuring economic news lately, his tone will be far from celebratory, given that the economy has eked out extremely weak growth over the past six months and a hoped-for rebound in business investment remains elusive.
"We've seen two quarters in a row of what appear to be double-digit gains in (business) profits, but I think the Fed would be more cautiously optimistic if we had a little more traction in the equity rally," said chief economist Diane Swonk of Bank One in Chicago.
"There is a sense that, from a backward-looking perspective, the economy is weaker than people thought. More recent economic data has suggested that things have begun to turn a bit," Swonk said.
The testimony, which takes places at 10 a.m. EDT (1400 GMT), will mark Greenspan's first detailed remarks on the economy since well before the March 20 start of the Iraq war.
At the Fed's last meeting, which came right on the eve of the war, policymakers jettisoned their usual practice of weighing in on the most likely direction of the economy. Instead, they said that given uncertainties related to the war, they could not "usefully characterize" the economic outlook.
Officials warned they would remain on "heightened surveillance" -- code words that left open the prospect for emergency rate changes if needed.
So far, the economic data, while gloomy, has not been dire enough to spur the Fed to cut rates from their already four-decade low 1.25 percent.
"I don't think the Fed has any intention of easing further," said Mickey Levy, chief economist at Bank of America in New York.
Most analysts believe the Fed will stand pat at its next meeting on May 6. However, they said the central bank may reiterate that it is keeping an especially watchful vigil over the economy.
Gross domestic product grew at a mere 1.6 percent rate in the first quarter, just barely exceeding the 1.4 percent gain in the fourth quarter of last year. The March and February employment reports saw the losses of hundreds of thousands of jobs and the labor market will only deteriorate further if the economy continues to wallow in such sluggish growth.
Despite a firmer footing to stock prices and less anxiety among consumers, there are plenty of reasons for worry. The end of the war in Iraq may give some help to sectors such as travel and tourism that were especially hard hit by the conflict.
On the other hand, there are new threats to watch for such as the outbreak of SARS and its impact on the global economy.
So far, Asia, which has seen the highest number of cases of Severe Acute Respiratory Syndrome, has been the hardest hit economically by it. But economists warned that the United States, which has not seen any deaths from SARS yet, could well be hit by economic ripple effects.
STICKING TO HIS GUNS ON TAX CUTS
One topic that will likely spark lively discussion at Wednesday's hearing will be tax cuts.
Greenspan in February angered some Republicans when he expressed doubts over the need for new fiscal stimulus and warned of budget concerns, dealing a blow to President Bush's proposal for $726 billion in tax reductions.
Congressional wariness about bloating the deficit has already whittled down the proposal and it may get trimmed further. Bush's comments signaling support for an extended tenure for Greenspan made clear there will be no political fall-out for the chairman's decision to stake out an independent course on the tax cuts.
So economists believe there is little reason for Greenspan on Wednesday to stray from what he has already said.