Benefits 'pose risk to US growth'

Mr Paulson vowed to lift US growth and trade when he took his post

Soaring benefit costs pose a key threat to the US economy, Treasury Secretary Henry Paulson has warned.

Huge costs related to schemes like Medicare risked limiting America's economic "flexibility" and its competitive edge, Mr Paulson said.

In his first public comments since taking the post he also signalled he would stick to the strong dollar policy of his predecessor John Snow.

He also echoed Mr Snow's criticism of China's monetary policy.

The US has long attacked China for failing to loosen its ties on the yuan, claiming that it fixes its exchange rate at an unfair level - a move that allows the country to supply low cost exports.

"The Chinese need to show more flexibility with their currency," Mr Paulson told CNBC.

"They have more work to do in developing their capital markets. We will encourage China to open their markets."

'Transition'

Closer to home, Mr Paulson also told students at New York's Columbia University that although the US economy was strong it was moving away from red-hot growth experienced in recent years.

"It would appear that what we are seeing is the economy transitioning to a more sustainable rate of growth, similar to the pattern we saw in the mid-1990s," he said.

The comments came days after official figures showed US growth had slowed in the second quarter of the year, on the back of rising interest rates and soaring energy costs.

According to the Commerce Department gross domestic product (GDP) grew at an annual rate of 2.5% in the three months to the end of June, compared to a 5.6% annual rate in the previous quarter.