Greenspan upbeat on US economy but warns on wages

FEDERAL Reserve Chairman Alan Greenspan gave an upbeat assessment of the US economy yesterday but warned of the risks of wage-driven inflation.

Mr Greenspan said wages had been held down by heightened job insecurity but added that he saw signs that that might be coming to an end.

The central bank chairman, in testimony to Congress, also described the rise in the stock market as "breathtaking".

But his remarks, prepared for the Senate Budget Committee, barely had any effect on financial markets, unlike in December, when his comment about "irrational exuberance" sparked a sell-off in stock markets around the world.

Echoing comments made nearly a year ago, Mr Greenspan said wages could only be held down so long and would ultimately rise.

"The recent pickup in some measures of wages suggest that the transition may be already running its course," he said.

"The important question from a monetary policy point of view is whether prospective labour market conditions will be consistent with the maintenance of satisfactory price performance," he said.

Mr Greenspan said the US,, economy grew about 3 per cent last year.

"The economy has retained considerable vigour, with few signs of the imbalances and inflationary tensions that have disrupted past expansions," he said.

Mr Greenspan gave the low inflation rate much of the credit for the economy's continued vigour, arguing that it had helped encourage strong capital investment by companies and longer-range planning.

Inflation has partly been held down by stepped-up US imports, which have acted as a "safety valve" for the economy by helping to satisfy domestic demand, he said.