Federal Reserve chairman Mr Alan Greenspan has warned that the US central bank was concerned about supply-demand imbalances in the economy, and that stock valuations seem to have been a big factor in the developing imbalance.

"The Federal Reserve is concerned about imbalances between aggregate demand and supply and the implications for inflation and thus sustainability of the expansion," Mr Greenspan said in a letter, answering questions which arose during his February 17th Humphrey-Hawkins testimony.

"The sharp increase in equity valuation appears to have been an important factor behind an apparently developing imbalance," he added, in the letter which was released to Congress yesterday.