Updated from 10:38 a.m. EST

Fed Chairman

Alan Greenspan expressed greater concern about the downturn in the economy

today than at his previous

testimony two weeks ago, sounding particularly worried about the decline in consumer confidence and overall economic weakness.

However, his even-handed words make it clearer that the Fed is unlikely to cut interest rates prior to the March 20 meeting, an idea already reinforced by Fed officials speaking prior to this morning's speech. The market has responded, lowering its chances of this as well.

Today's testimony before the

House Financial Services Committee

has a two-fold purpose -- to show the markets that Greenspan and other Fed officials are indeed concerned about the stumbling economy, but also to assuage the markets that the Fed intends to continue to act to head off recession. But Greenspan, as is his manner, doesn't sound panicky, and his remarks (along with recent remarks by Fed officials) has helped the market become more used to the notion that the Fed isn't going to be changing monetary policy until next month.

Greenspan's seeming desire to hold off until the meeting seems more clear in response to the first question from Congress, regarding stock prices. He said the Fed has to be "careful" in reading too much into equity values at any particular time, due to the over-emphasis on pessimism that it can reflect at a given moment.

"If they were going intermeeting he would have given us a warning today," said Mike McGlone, vice president in options trading at

Aubrey G. Lanston

. "Ostensibly, we popped that bubble."

Another move between meetings, following the Fed's Jan. 3 surprise, when the

FOMC cut the fed funds rate by half a percentage point to 6%, was viewed as unlikely. However, there's palpable disappointment evident in the stock market, where equity prices are headed south again. That market, of course, is dealing with all the problems that companies face in an economic retrenchment -- layoffs, falling earnings and inventory drawdown -- and the hope was for a greater elixir from the Fed, and sooner.

This makes it likely they're not going to get it. Lately the

Dow Jones Industrial Average was down 158 to 10,478 and the

Nasdaq Composite Index fell 61 to 2146.

"They're going to move, and probably think, 'What's another three weeks?'" said Steven Goldman, market strategist at

Weeden

. "For investors today, that's a long time. For an economy, you wouldn't think another three weeks will matter anyway."

Following his prepared text, Congress members have moved on to questions about the budget and tax policy. Greenspan reiterated his usual thoughts about budget projections and tax policy, without really expressing any kind of support or lack thereof for President

George W. Bush's

proposals. He's also been questioned about his thoughts on consumer confidence; at one point he responded to a question about his remarks by saying that he can't "spin the economy," but can only give a more measured appraisal of performance. He's also been peppered with comments about why he didn't cut rates sooner, and he's mostly headed off those questions.

Evidence of the market's adjustment can be witnessed in the

fed funds futures contract, the best indication of how the market feels about monetary policy. The March contract is still fully pricing in not just a 50 basis-point rate cut on March 20, but it's slowly downgrading chances of a 75 basis-point cut, which it had fully priced in up until today. Now, it puts about 86% odds on it, although that's been falling through the testimony.

However, and it's a tricky calculation, the contract is pricing in a reduced chance of an intermeeting cut. If one assumes that the Fed would have cut another 25 basis points before the meeting, the contract now reflects no chance of a 50-point cut at the meeting, down from a 34% chance yesterday. The fed funds futures are generally not considered an accurate gauge until about seven to 10 days prior to the meeting.

With persistent weakness evident in the economy, and the Fed's long-standing desire to follow the fixed income markets, a 50-point rate cut in the

fed funds rate, to 5% from the current 5.5%, seems the most likely scenario at the March 20 FOMC jamboree. A 75-point cut seems less likely; it would mark an unprecedented level of aggressiveness for the Fed.

Revising History

Two days ago, a Fed spokesperson said Greenspan's testimony would be a revision of his remarks given to the

Senate Banking Committee

Feb. 13. Today's prepared remarks were largely similar, although there were key revisions in passages regarding the slowing in growth and the decline in consumer confidence.

In his earlier testimony, Greenspan cited evidence that the exceptional slowing in the fourth quarter was less evident in January. This time, he revises that to say "the economy appears to be on a track well below the productivity-enhanced rate of growth of its potential and, even after the policy actions we took in January, the risks continue skewed toward the economy's remaining on a path inconsistent with satisfactory economic performance."

That's a new statement, indicating greater concern on the part of the Fed.

In addition, Greenspan amplified earlier remarks about consumer confidence. He's been particularly worried about what happens to consumer confidence when the economy enters a recession, as it engenders a sharp retrenchment and change in attitudes, rather than just a mild slowing.

Previously, he had stated that consumer confidence was at a level consistent with economic growth. Here, he's more worried, saying "changes in consumer confidence will require close scrutiny in the period ahead, especially after the steep falloff of recent months." Again, he sounds more concerned -- but that statement was offset by his mention of "the period ahead," because it implies that the Fed's going to do more watching and waiting.

Greenspan also tempered this statement by citing, in a new passage, the only modest weakness in auto and home sales, indicating that despite consumers' increasingly negative assessment of the future, it hasn't cut deeply into consumer spending now. Fed Vice Chair

Roger Ferguson

made a similar point in a

speech yesterday.

"Consumers have retained enough confidence to make longer-term commitments," Greenspan said in his speech.

Still, the remarks make patently clear that Greenspan and the Fed remain quite worried about slowing growth. Greenspan closes with a new summary, saying the excesses built up in 1999 and early 2000, "have engendered a retrenchment that has yet to run its full course. This retrenchment has been prompt, in part because new technologies have enabled businesses to respond more rapidly to emerging excesses." He closes by saying the Fed has "quickened the pace of adjustment of its policy."