Greenspan Calm on Trade Gap

Federal Reserve Chairman Alan Greenspan appeared calm Tuesday about the massive U.S. trade deficit, saying it should cause neither financing problems nor inflation from a falling dollar.

“There is, for the moment, little evidence of stress in funding U.S. current account deficits,” Greenspan said.

Greenspan, at a Bundesbank seminar in Berlin, also warned against stepping into markets to correct imbalances. He said markets could adjust for the U.S. trade deficit with no other actions being taken.

By taking this free-market approach, Greenspan offered no solace to European leaders, who on Tuesday heightened their pressure on top financial policymakers to halt the dollar’s fast decline for fear that it could upset economic recovery.

German Chancellor Gerhard Schroeder told Greenspan at a meeting earlier in the day that the dollar’s weakness was a concern, people with knowledge of the meeting said.

Analysts said the absence of any comment from Greenspan that the U.S. trade deficit or fast-moving currencies -- the dollar has fallen about 8.5% in the last year against a basket of major currencies, and much more against the euro -- were destabilizing influences left Europe alone on the issue.

“Clearly there is a disagreement between the ECB [European Central Bank] and the Federal Reserve about the importance of the dollar and where it has gone to,” said Jonathan Hoffman, economist at RBS Financial Markets in London.

This will make it far harder for finance ministers and central bankers at the Group of 7 meeting of top industrial nations in early February to reach agreement to halt the dollar’s slide against the euro, analysts said.

Greenspan in his speech acknowledged that euro-zone exporters were under “considerable pressure,” but he also noted that financial conditions were improving in credit and stock markets.

Though the U.S. dollar has fallen, he said, “Inflation, the typical symptom of a weak currency, appears quiescent.”

The government said Tuesday that a broad measure of import prices, excluding oil, rose 0.1% in December, down from a 0.2% rise in November.

In a lengthy economic discussion, Greenspan consistently stressed the importance of flexible and open markets. He also said he saw a global financial crisis as “extraordinarily unlikely.”