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Federal Reserve Board Chairman Alan Greenspan feels the U.S. economy is in good shape and the positive news should continue as long as the Fed keeps nudging interest rates higher, according to CBS MarketWatch.
“Our baseline outlook for the U.S. economy is one of sustained economic growth and contained inflation pressures,” Greenspan told the House Financial Services panel on Wednesday (July 20) in his semi-annual report on monetary policy.
In order to ensure this forecast, the Fed must continue to raise interest rates, Greenspan said.
“In our view, realizing this outcome will require the Federal Reserve to continue to remove monetary accommodation,” he said.
The Fed has raised interest rates in baby steps to 3.25% from 1.0% in the past year.
Greenspan said the Fed was worried in May about an apparent soft patch in the economy data. But over the past two months he said, the data has turned around.
“The data released over the past two months or so accord with the view that the earlier soft readings on the economy were not presaging a more serious slowdown in the pace of activity,” he said.
Higher energy prices are a key risk to the outlook, he said.
The trade sector was likely to remain a drag on the growth rate in coming quarters, Greenspan said, although the rebound in the dollar would damp some inflationary pressure.
Although there are some overheated housing markets, Greenspan said, the economy should be able to handle any drop in home prices.
Greenspan devoted much of his prepared remarks to the low level of long-term interest rates. He concluded that some of the factors behind the drop were not likely to continue to push rates lower.