Surging energy prices deserve most of the blame for recent soft patches in growth, but the U.S. economy should weather them,
Chairman Alan Greenspan said Friday.
In a speech before the Economic Club of New York, Greenspan pointed out his own prescience for predicting in April that the spike in oil prices would lose momentum. He also said the U.S. economy has become more energy-efficient in recent years.
"The effect of the current surge in oil prices, though noticeable, is likely to prove less consequential to economic growth and inflation than in the 1970s," the Fed chief said.
In a question-and-answer session following his prepared remarks, Greenspan touched on a number of hot-button issues being debated in the financial markets.
Regarding concerns that a speculative bubble is building in the housing sector, he said that such a problem appears to be unfolding in some regions, but he does not see a likelihood that home prices will decline on a national scale.
Analysts have identified real estate markets in coastal Florida and California where buying and selling activity is signaling bubble activity.
The Fed chief also said he believes China will eventually change its currency system so the yuan will rise in relation to the dollar. He said China's current system represented an increasing threat, including higher inflation, to the Chinese economy, but he conceded that a higher yuan would not help the U.S. trade deficit significantly, because retailers would probably turn to other labor-intensive countries for goods.
Greenspan did not address his plans for the future of interest rate policy. Earlier this month, the Fed raise interest rates by a quarter-point for the eighth month in a row.