Greenspan warns on protectionism

Mr Greenspan is stepping down in January

US Federal Reserve boss Alan Greenspan sees increased US trade protectionism and ever-larger budget deficits as the biggest threats to the US economy.

Mr Greenspan said both threatened the US economy's "most valued policy asset" - its flexibility.

His comments came in a speech to central bank bosses from across the world at the Fed's annual Jackson Hole meeting in Wyoming.

Mr Greenspan is due to stand down in January after 18 years in the job.

Housing bubble?

Speaking earlier on Friday, Mr Greenspan said he was concerned about the potential fallout following the recent end of three years of low interest rates.

It [the drop in confidence] is all about gasoline prices Analyst Kevin Logan

With the US economy now growing strongly, the Fed has been forced to raise interest rates ten times in succession over the past year to prevent the threat of accompanying inflation.

Previous low interest rates fuelled a still ongoing housing boom in the US, and Mr Greenspan said he was concerned that some homeowners and lenders could start to feel the pinch if the housing market cooled too quickly.

On the issue of high energy prices, Mr Greenspan said the US economy had avoided being negatively affected so far.

Petrol pressures

"The flexibility of our market-driven economy has allowed us, thus far, to weather reasonably well the steep rise in spot and futures prices for crude oil and natural gas that we have experienced over the past two years," said Mr Greenspan.

Higher petrol prices appear to be knocking US consumer confidence

Meanwhile, US consumer sentiment fell to 89.1 in August, down from July's figure of 96.5, according to the closely-watched University of Michigan guide.

The decline in confidence was bigger than expected, topping average market expectations for a drop to 92.7.

Analyst Joseph Battipaglia, chief investment officer at Ryan, Beck & Co, said it was inevitable high energy prices would dent consumer sentiment.

Economist Kevin Logan, of Dresdner Kleinwort Wasserstein, said: "It is all about gasoline prices. We have seen this before in the spring when gasoline prices first started to rise," he said.

He added: "This seems to have more impact on people's expectations than current conditions."