Greenspan urges cautious growth

Mr Greenspan wants sustainable economic growth

Federal Reserve chairman Alan Greenspan has said the US economy is continuing to grow in 2005, but warned there was no room for complacency.

Speaking to the Senate Banking Committee, he said future inflation must always be kept in check to prevent the economy from overheating.

Mr Greenspan also said it was "imperative" that the US sought to lower its giant budget deficit.

"We must thus remain vigilant against complacency," he said.

'Well-anchored'

Delivering the Fed's twice-a-year economic outlook to Congress, Mr Greenspan was generally positive, saying the US economy was growing at a respectable rate.

Although he cautioned about future inflationary pressures, he said inflation was currently under control.

"All told, the economy seems to have entered 2005 expanding at a reasonably good pace, with inflation and inflation expectations well anchored," he said.

How inflation develops over the coming months will inevitably shape the Fed's interest rate response.

Since last June, it has initiated a gradual upward path, with six 0.25% increases, and US interest rates now stand at 2.5%.

"Going forward, the implications for inflation will be influenced by the extent and persistence of any slowdown in productivity," Mr Greenspan said.

John Canavan, a market analyst at Stone and McCarthy, said Mr Greenspan's testimony was "in line with other recent comments by other Fed officials".