Federal Reserve Chairman Alan Greenspan said Thursday the economy is still going through a soft patch and it is still too early to tell whether the Fed has done enough with low interest rates to produce a sustainable recovery.

The Federal Open Market Committee, the Fed's chief policy-making group, cut interest rates 12 times starting in January 2001, with the last interest rate reduction of a bold half-point coming last month. That marked the Fed's first rate reduction this year.

"The Federal Open Market Committee, chose, as you know, to embark on an aggressive course of monetary easing two years ago once it became apparent that a variety of forces, including importantly the slump in household wealth that resulted from the decline in stock prices, were restraining inflation pressures and economic activity," Greenspan said in a speech to the Economic Club of New York.

"It is too soon to judge the final outcome of the strategy that we adopted," he added.

Copies of Greenspan's remarks were distributed in Washington.

Greenspan said the Fed's aggressive lowering of interest rates had helped cushion the shocks to the economy from falling stock prices, but he said the markets were hit by another jolt this year in the form of a wave of corporate accounting scandals.

Greenspan didn't specifically discuss what the Fed might do on interest rates at its next meeting in late January. At the Fed's last meeting on Dec. 10, it decided to hold a key interest rate steady at a 41-year low of 1.25 percent.

The Fed chief did dismiss worries that the Fed was in danger of running out of ammunition just at a time when economic weakness could trigger deflation, a prolonged bout of falling prices.

"The United States is nowhere close to sliding into a pernicious deflation," Greenspan said. If such a threat should emerge, the Fed would be prepared to use a variety of tools to boost the money supply beyond its normal approach of targeting the federal funds rate, he added.

"Clearly, it would be desirable to avoid deflation," Greenspan said.

Greenspan said the economic recovery ran into resistance in the summer as the accounting scandals and concerns about a possible war with Iraq helped to trigger a further drop in stock prices.

Against that backdrop, Fed policy-makers grew concerned that the economy's recovery could lose strength.

Greenspan said the Fed's last rate cut on Nov. 6 was meant as "some insurance against the possibility that the weakening would gain some footing."

Since that November rate cut, there is limited evidence that the "U.S. economy has been working its way through a soft patch," Greenspan said. "And that patch has certainly been soft."

The labor market has been sluggish as companies, wary about economic uncertainties, have been reluctant to make big investments in hiring and in capital spending, two forces restraining the economy's recovery.

"There is evidence that some corporate managers are beginning to tentatively venture out on the risk scale," Greenspan said. "New orders for capital goods equipment and software, after falling sharply over the preceding two years, have stabilized.... an improvement, to be sure, but not necessarily the beginnings of a vigorous recovery."

Manufacturing, hardest hit by last year's recession, was on the comeback trail earlier this year, but has been struggling in recent months.

Consumers, whose spending accounts for two-thirds of all economic activity, have been carrying the economy all year.

Low interest rates and mortgage rates, and extra cash from a wave of home mortgage refinancing, have helped to support consumer spending and offset some potentially negative forces, including the sluggish job market and the turbulent stock market.

Lynn Reaser, chief economist at Banc of America Capital Management, said Greenspan emphasized two major risks to the economy: a possible war with Iraq, and corporate profits and business confidence that haven't been enough to push forward capital spending.

"But he suggested that once the uncertainty over Iraq is removed, the economy should get back on track with a better performance in 2003," she added.