Greenspan Foresees No Recession : Says Fed Restrictions Are Likely to Extend Expansion

Federal Reserve Board Chairman Alan Greenspan said today the rise in interest rates over the last 10 months is unlikely to lead to a recession.

Indeed, by suppressing some of the forces that could have led to economic instability, the Fed’s restrictive policy is more likely to extend the expansion than bring it to an early halt, Greenspan told the Joint Economic Committee of Congress.

Greenspan also said the U.S. trade deficit will continue to decline without any further devaluation of the dollar. He said that U.S. export orders remain high and that American industries are still “quite competitive.”

U.S. Oil Bill to Rise

“I think the trade deficit will continue to decline later this year,” he said, although he added that higher U.S. exports will be offset in part by an increase in the U.S. oil bill.

Greenspan reiterated that the risk of higher inflation is sufficiently great that monetary policy might well be advised to err more on the side of restrictiveness than of stimulus.

He told the Joint Committee that current inflation rates are already clearly too high and must be brought down.

“The risk of greater inflation could be appreciable if real GNP continued to increase at recent rates over the next several years,” Greenspan said.

He also said the differences he currently has with President Bush are “close to negligible,” adding that he has known Bush’s economic views for years and fully concurred with the President’s statement last week that there is very little difference between them.

Last week Bush and Greenspan sparred over monetary policy.