MercoPress. South Atlantic News Agency

Flexibility, the US economy “most valued asset”

The US economy has weathered reasonably well the steep rise in spot and future prices for crude oil and natural gas in the last two years said Federal Reserve chairman Alan Greenspan who also highlighted “flexibility” as the economy's “most valued asset”.

Speaking at the annual Federal Reserve meeting in Jackson Hole, Wyoming which convenes central bankers from all over the world, Mr. Greenspan underlined that 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".

However Mr. Greenspan identified US increased trade protectionism tendency and ever larger budget and trade deficits as the biggest threats to the US economy.

Mr. Greenspan is due to stand down next January after eighteen years in the job and the Wyoming event was seen as a farewell from the 23 central bankers who were present at the week end gathering including four from Latinamerica, Argentina, Brazil, Chile and Mexico.

Keep all options open, don't be trapped by ideological or intellectual straight jackets and avoid abrupt changes in policies, were the main monetary policy design recommendations of Mr. Greenspan on his 18 years experience at the helm of the most influential central bank in the world.

Besides warning about growing US protectionism and the burgeoning fiscal and trade deficits, Mr. Greenspan also addressed the potential fallout following the recent end of three years of low interest rates.

With the US economy growing strongly the Federal Reserve has been forced to raise interest rates ten times in succession over the past twelve months to prevent the threat of inflation, which could have especially adverse effects on longer-run economic performance.

Mr. Greenspan said he was concerned some homeowners and lenders could start to feel the pinch if the housing market cooled too soon.

The latest Federal Reserve meeting minutes show that it was "generally anticipated that the pace of home price appreciation would slow over time, though the timing and extent of that slowing, as well as its implications for consumer spending, were quite uncertain".

At the moment, rising house prices are helping boost consumer spending as people borrow against the increased value of their property. But no one is sure, once house prices stop rising, how much this will affect consumer spending and consumer confidence. So far, despite the increase in short-term interest rates from 1% to 3.5%, the long-term mortgage rates have barely changed, reflecting a glut of long-term debt on the market.