Financial markets react to Greenspan's comments

Stock, bond and forex markets today reacted to Fed chairman Alan Greenspan's upbeat comments on the US economy yesterday.

Greenspan upbeat on economy
ALAN GREENSPAN, chairman of America’s Federal Reserve, has insisted that the US economy has entered a period of sustainable expansion that should weather a summer slowdown and is under no serious threat from inflation.

The head of America’s central bank told the Senate Banking Committee that faster growth was creating price pressures but some of them, like energy costs, were temporary, so interest rates can probably rise to an unspecified "neutral" level at a "measured" pace.

"Those higher prices, by eroding households’ disposable income, have accounted for at least some of the observed softness in consumer spending of late, a softness which should prove short-lived," Mr Greenspan said in his semi-annual Congressional testimony on monetary policy.

During his address to the House Financial Services Committee, the Fed chief said the economy had shown improvement already in July, particularly in car sales.

"There is no real underlying evidence of any cumulative weakness here," he added.

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