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The U.S. economy has weathered the blow from recent devastating hurricanes and still has good momentum, Federal Reserve Chairman Alan Greenspan said on Thursday (Nov. 3), though inflation risks are a worry, according to Reuters.
“The economic fundamentals remain firm, and the U.S. economy appears to retain important forward momentum,” Greenspan told the congressional Joint Economic Committee.
The 79-year-old Fed chief, who steps down at the end of January, also warned the United States must take steps to boost its supplies of natural gas, though he said they seemed adequate for the moment.
“However, a colder-than-average winter would stress this market, and prices will likely remain vulnerable to spikes until the spring,” he said. In response to questions, he warned U.S. consumers might be “quite surprised” by the heating bills they receive this winter.
Greenspan made no specific reference to monetary policy but his caution about inflation prospects left no doubt that Fed policy-makers are set on a course of rising rates to keep prices from escalating.
The policy-setting Federal Open Market Committee boosted short-term U.S. interest rates for a 12th straight time on Tuesday, pushing the trend-setting federal funds rate to 4%, the highest in more than four years.
“The economy is strong but they’re worried about inflation – it sounds a lot like the FOMC statement,” said economist Stephen Stanley of Greenwich Capital markets in Greenwich, Conn. “There is no signal that the Fed is nearing the end (of its tightening cycle).”
Greenspan repeated a warning that U.S. budget deficits must be put under control, but conceded it will be difficult when billions of dollars must be spent to rebuild the Gulf Coast after hurricanes Katrina and Rita.