Greenspan Says Rate Rise Can Await Sustained Recovery

By Agence France-Presse U.S. Federal Reserve Chairman Alan Greenspan said April 17 that U.S. interest rates are set to remain at a 40-year low until a sustained, solid economic expansion is clear. Investors are sweating over when the Federal Reserve will lift the key federal funds rate to protect against inflation as the economy begins to gain strength. But inflation appears to be tamed. And even as U.S. economic prospects brighten, new challenges including higher oil prices are arising, Greenspan said. "Over time, the current accommodative stance of monetary policy is not likely to be consistent with maintaining price stability," Greenspan told lawmakers in Congress. "But prospects for low inflation and expectations in the period ahead mean that the Federal Reserve should have ample opportunity to adjust policy to keep inflation pressures contained once sustained, solid economic expansion is in view." U.S. Federal Reserve policymakers slashed the key interest rate to 1.75% last year from a peak of 6.5% to stimulate activity and cushion the shock of the Sept. 11 attacks. But signs of a strengthening economy recovery have accumulated in a slew of recent data. Greenspan repeated the Federal Reserve's March assessment that the U.S. economy was expanding at a "significant pace" as businesses began to order new products to fill depleted inventories. "The pickup in the growth of activity, however, will be short-lived unless sustained increases in final demand kick in before the positive effects of inventory investment dissipate," he said. "We have seen encouraging signs in recent months that underlying trends in final demand are strengthening, but the dimensions of the pickup are still not clear." Consumers -- whose spending accounts for two-thirds of U.S. economic activity -- must tackle new problems, including higher oil prices that eat into their purses, the Federal Reserve boss said. If the oil price rise remains within the trading range of past weeks the impact should be small, he said. "However, a price hike that drove oil prices well above existing levels for an appreciable period of time would likely have more far-reaching consequences," he warned. Overall, the U.S. economy has shown remarkable resilience to significant shocks over the past six months, Greenspan said. Copyright Agence France-Presse, 2002

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