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Greenspan: Economy's Current Expansion Could Be Constrained - 2002-04-17

U.S. central bank chief Alan Greenspan has said a foundation for solid economic recovery has been laid but that the strength of the expansion now underway remains to be clarified.

Mr. Greenspan was relatively upbeat in an appearance Wednesday before the Congressional Joint Economic Committee. He said short-term interest rates will remain at their current very low levels until a solid, sustained recovery is underway. He also said the U.S. economy has proved remarkably resilient in absorbing the shock of last September's terrorist attacks.

A record 10-year long economic expansion ended in March 2001, but the recession that followed has been mild and growth resumed in the October to December quarter. Mr. Greenspan did not offer a date as to when he believes the recession ended.

The long-serving Federal Reserve board chairman said there are factors, such as rising oil prices and high levels of debt that could restrain the current expansion. Pointing to a notable area of economic strength, Mr. Greenspan said consumers have responded to near record low interest rates by refinancing their homes and paying down installment debt.

"There is a significant capability in most households, particularly those which own homes with equity in them, to employ home equity loans, or in cases of refinancing, so-called refinancing cash-outs, where you take out cash from the process. And what that enables a lot of households to do is pay down their installment and credit card debt. And indeed they have done so," he said.

Mr. Greenspan said higher income households have been hit hardest by the steep two-year long decline in the stock market. He said it is unlikely that the housing market will experience a price bubble like that which occurred in high technology stocks.

Analysts said after aggressively lowering interest rates last year the Federal Reserve is unlikely to begin raising rates until at least the end of June. Mr. Greenspan said the prospects are for low inflation in the period ahead and expressed confidence the Federal Reserve will be able to keep it in check during the recovery.