Greenspan ready to keep US rates low

US Federal Reserve chairman Alan Greenspan signalled he is ready to keep US interest rates low for a "considerable" period of time to lift the economy and prevent a dangerous fall in prices.

US Federal Reserve chairman Alan Greenspan signalled he is ready to keep US interest rates low for a "considerable" period of time to lift the economy and prevent a dangerous fall in prices.

He also said the US Central Bank's policy-setting Federal Open Market Committee could reduce rates beyond their current 45-year low of 1%, if the economy fails to rebound strongly enough.

"The FOMC stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance," Greenspan said to the House of Representatives Financial Services Committee as part of his semi-annual monetary report to Congress.

Federal officials have recently discussed unconventional ways to combat deflation, such as intervening in the bond market to push down long-term rates.

But Greenspan's latest comments made clear the Fed's traditional tool of short-term interest rates would, for now, remain its first line of defence against the risk of deflation.

The Fed's most recent rate cut on June 25 was the 13th reduction since early 2001.

Greenspan said one reason the Fed has undertaken such an aggressive rate-reduction campaign is that it is worried about the possibility that the very low inflation rate could give way to an outright fall in prices if the economy were to be hit by a sudden shock.

At the moment, Greenspan said the economy's state is not dire enough to warrant a test of new types of policy measures.

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