- THE MAGAZINE
"Last year appears to have marked a transition from an extended period of subpar economic performance to one of more vigorous expansion," Greenspan told the House of Representatives Financial Services Committee. "Looking forward, the odds of sustained robust growth are good, although as always, risks remain."
The Fed chief warned of both potential long-term and short-term risks from failing to get huge government deficits under control.
"Chronic concern" about a possible spike in energy prices was another economic danger, he said, adding that for Fed policy-makers, a continuing worry was that their policy could become "improperly calibrated" to economic developments.
Greenspan said record federal budget deficits could create problems "in the relatively near term" unless a convincing plan for ratcheting them down was put in place. "Should investors become significantly more doubtful that the Congress will take the necessary fiscal measures, an appreciable backup in long-term interest rates is possible," he said.
He said inflation appeared to be "in a range consistent with price stability," which he called notable in light of the dollar's decline against other currencies.
Greenspan said the fall in the dollar would ultimately help narrow the gaping U.S. current account gap, a comment that sent the dollar lower on foreign exchange markets.
The Fed chief said foreign companies so far have been willing to absorb the hit to their profits from a falling dollar by hedging on currency markets. But he cautioned: "Although hedging may delay the adjustment, it cannot eliminate the consequences of exchange rate change."