THE ECONOMY : Inflation Is Under Control, Federal Reserve Chief Says : Stability: Alan Greenspan says the progress being made means long-term interest rates may come down.

The United States has waged a successful war against inflation, and further progress appears likely, Federal Reserve Board Chairman Alan Greenspan said Tuesday.

“The U.S. economy has made considerable progress toward price stability over the past decade, trimming the core rate of inflation to below 4%, and it appears poised to make further advances,” Greenspan told a House subcommittee.

With price stability in the cards, the Fed chief told the subcommittee of the House Government Operations Committee that long-term interest rates could eventually come down.

Although short-term rates have fallen below 4%, long-term rates still hover around 8%. The Fed has sought to bring them down to stimulate investment and economic expansion.

The rates are key to the economy, since everything from home mortgages to consumer loans is tied to them.

Long-term rates, set in the financial markets, have remained high because investors remain skeptical about the ability of policy-makers to curb inflation.

Greenspan said he saw “no reason” why long-term rates could not come down, but he added that he wasn’t saying the United States could readily return to the 3% rates that have prevailed in previous times of price stability.

The central bank chairman also said the Fed “retains responsibility for long-run price stability and fully intends to guard against reigniting inflation.”

The government last week reported that prices remained under control, with consumer inflation inching up just 0.1% in May. A sharper 0.4% gain in wholesale prices was viewed as a fluke.

Most of Greenspan’s remarks centered on the merits of devising a Treasury debt issue whose principal and interest payments would be indexed to inflation.

Proponents of the idea believe that it would reduce the cost of servicing the government’s massive debt, while making it more attractive for Americans to save.

Greenspan said one of the benefits of the approach is that it would be another tool for the Fed when it conducts monetary policy.

“For my own part, I am attracted by the prospect of opening a window on the market’s view of the path for inflation,” he said.

But he added that any decision to issue inflation-linked debt “should remain in the domain of fiscal policy and be based primarily on the consequences for (the Treasury’s) total borrowing costs.”

He said the benefits of monetary policy are not so great as to outweigh additional costs to the taxpayer in the financing of Treasury debt.

He said that any novel new instrument, such as an inflation-linked bond, would initially be less liquid and ultimately might lead to fragmentation of the government bond market, perhaps raising the cost of financing the huge federal deficit.