Mr Alan Greenspan, chairman of the Federal Reserve, yesterday sounded a guardedly optimistic note on the US economy and said inflationary pressures had eased in spite of the high oil price.

"The most recent data suggest that, on the whole, the expansion has regained some traction," Mr Greenspan said, following a "soft patch" in the early summer.

"Despite the rise in oil prices through mid-August, inflation and inflation expectations have eased in recent months."

He pointed to the corporate profit cycle and lower non-oil import prices as factors that explain lower core inflation in recent months.

Mr Greenspan made no attempt, in his appearance before the House Budget Committee, to alter market expectations of an interest rate increase when the Fed's policymaking open market committee meets later this month.

The Fed has outlined a strategy of returning rates to a more neutral level at a "measured pace".

When it raised the federal funds rate by a quarter point to 1.5 per cent last month, the Fed said the economy had hit an oil-induced slow patch but was "poised to resume a stronger pace of expansion".

However, Mr Greenspan made only a brief formal statement on the economy and was cautious in his comments.

He said consumer spending and new housing starts had rebounded in August, though "early readings on retail sales in August have been mixed".

The Fed chairman was more upbeat on business investment, which he said remained on a solid upward trend.

Manufacturing output had increased in recent months, he said, but this in part reflected a rise in inventories.

The labour market had picked up in August, after weakness in the prior two months, but had not regained the vigour of the spring, he said.

The Fed's beige book, its survey of regional economic and financial conditions, released yesterday, suggested that economic activity had "continued to expand in late July and August", but several districts said the pace of growth had moderated since the last report at the end of July.

"Household spending was reported to have softened in many parts of the nation, reflecting lacklustre retail sales and some cooling in new and existing home sales," the report said.

Mr Greenspan stressed the uncertainty among economists on precisely how changes affect the economy, dwelling on the impact on growth rather than the impact on inflation.

Low inflation and well-behaved inflation expectations make the Fed's task less difficult, allowing it to pay attention to the impact of the oil price on demand rather than having to fight accelerating inflation.