Bumpy ride ahead, warns Greenspan

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DESPITE the present upturn the US economy still faces a bumpy road to sustained faster growth, Alan Greenspan, Federal Reserve chairman, warned yesterday.

Among the problems he cited a weak international economy, a spate of recent cuts by some of the biggest US corporations and a continuing reluctance by banks to lend money.

Mr Greenspan's testimony to the joint economic committee of Congress was his first such appearance on Capitol Hill since the new Democratic administration took office a week ago - and, in fact, for six months. The picture he painted was of an economy showing 'encouraging' signs of revival but whose longer-term health was by no means assured.

According to the Fed chairman the economy had been growing at around 3.5 per cent in the second half of 1992, compared with a meagre 1.5 per cent during the five quarters immediately after the recession technically ended in the early spring of 1991.

But, despite the current re

covery in the construction industry, higher consumer spending and low inflation, he reminded

the committee of his warning

18 months ago of '50mph headwinds' facing the economy.

'Those headwinds have slackened somewhat, but they have not disappeared,' he said.

His caution displeased some Democrats, who fear that the Bush era 'gridlock' between the White House and Congress might be replaced by conflict between an expansion-minded administration and a central bank inclined to tighten monetary policy at the first whiff of rekindled inflation.

Senior advisers to President Bill Clinton have been hoping that their avowed intent to act to trim the dollars 300bn budget deficit might encourage the central bank to lower interest rates - currently 3 per cent - still further.

But Mr Greenspan gave no such hint yesterday, although he insisted that the Fed would work closely with the new administration. 'Co-operation is already accelerating,' he declared.

Responding to criticism of last week's Federal Reserve decision to cut the target range for the primary M2 measure of money supply, Mr Greenspan said it was a 'technical adjustment', which did not mean the Fed intended to increase rates.

The central bank wanted to promote financial conditions that would foster long-term growth.

A 'non-inflationary environment' was a prime requisite, he added.