Chairman Alan Greenspan said Tuesday that he sees minimal problems in funding the growing U.S. trade gap, despite the recent drop in the dollar, and also downplayed the yearlong decline of the U.S. currency itself.
"There is, for the moment, little evidence of stress in funding U.S. current account deficits," Greenspan said in a speech at Germany's Bundesbank in Berlin.
"Should globalization be allowed to proceed and thereby create an ever more flexible international financial system, history suggests that current imbalances will be defused with little disruption," he said.
Greenspan said there was "one major caveat" to his assessment. "Some clouds of emerging protectionism have become increasingly visible on today's horizon," he said, revisiting one of his current themes. "Over the years, protected interests have often endeavored to stop in its tracks the process of unsettling economic change. Pitted against the powerful forces of market competition, virtually all such efforts have failed."
The Fed chairman also downplayed the dollar's descent against other major currencies. "Inflation, the typical symptom of a weak currency, appears quiescent," he said, echoing the Fed's current policy assessment on price pressures. The dollar, for instance, is down more than 40% from its 2000 high against the euro and has hit repeated record lows against the common European currency for the past couple months.
"Euro-area exporters have been under considerable pressure," Greenspan said, as a result of the plunge in the dollar. "But in recent months, credit risk spreads have fallen and equity prices have risen throughout much of the global economy."
Greenspan's comments on the dollar stand in some contrast to those of European Central Bank President Jean-Claude Trichet on Monday. "We are concerned. We are not indifferent," he said.
Further, in remarks after his formal speech, Greenspan said it was "just a matter of time before we see employment begin to pick up significantly." Worries about the slow pace of job creation resurfaced last Friday, after the government said the economy created just 1,000 new jobs in December, while also lowering job growth figures for previous months.
The Fed chief did not discuss interest rates. The central bank's monetary policymaking committee next meets Jan. 27-28.