Recession Unlikely, Greenspan Testifies : Economy: Fed chief says he believes the U.S. will spring back from its current slowdown.

Federal Reserve Board Chairman Alan Greenspan said today that the current economic slowdown was only temporary and he did not see the United States slipping into a recession unless there are unforeseen weaknesses in the economy.

The head of the central bank also said that the inflation rate, at 4.6% last year, had stabilized but was still too high.

In testimony before the Congressional Joint Economic Committee, Greenspan said that “imbalances and dislocations as we see in the economy today probably do not suggest anything more than a temporary hesitation in the continuing expansion of the economy.”

He said recent economic data suggest that the likelihood of a recession developing in the next six months has declined since last spring.

“The probability of a recession now is less, but I don’t think it is negligible. We are still at risk,” Greenspan said.

He told the panel that more data will be needed before it is known that the economy will successfully avoid recession.

“We probably will need data into the spring to be reasonably secure in that,” Greenspan said when asked by a panel member whether the United States is no longer in danger of recession.

Inflation has stabilized, Greenspan said. “The underlying cost structure has not accelerated, but it is not decelerating either,” he said.

Greenspan said an inflation rate of 4.6%, which the economy experienced last year, was unacceptable. He said inflation posed the greatest threat of a recession because it led to imbalances in the economy.

In his prepared testimony, Greenspan said that economic developments must be monitored closely and Fed policy-makers must stay alert to the possibility that some of the weaknesses in the economy could lead to a more widespread downturn.

He told the panel that the data released last week--which showed that real gross national product rose at an annual rate of 0.5% in the fourth quarter--indicate that business activity has slowed.

He said special factors influenced the numbers--namely the California earthquake, Hurricane Hugo, extremely cold weather and the strike at Boeing.

“But even allowing for those factors, business activity in recent months clearly has been less vigorous than it was earlier,” Greenspan said in his prepared text.

In his testimony, Greenspan outlined some of his thoughts on the weak areas of the economy, notably the real estate markets and the auto industry.

Greenspan does not look for a nationwide contraction in the housing market. He said the slowdown in new home and commercial building construction in some regions of the country reflects earlier robust construction activity.

The current slowdown in auto sales comes after a strong pace of sales through most of the 1980s, Greenspan said. He said that lowered sales “are at this point likely to reflect primarily replacement needs and growth in the driving-age population.”