The Fed's policy-making Open Market Committee last month cut the benchmark overnight bank lending rate to a 45-year low of 1%. It will cut it again if growth doesn't pick up, Greenspan said in the text of testimony to the House Banking and Financial Services Committee.
"The FOMC stands prepared to maintain a highly accommodative stance for as long as needed to promote satisfactory economic performance,' Greenspan said.
"Policy accommodation aimed at raising the growth of output, boosting the utilisation of resources, and warding off unwelcome disinflation can be maintained for a considerable period without ultimately stoking inflationary pressures,' he said.
Rising stock prices and low interest rates have improved financing costs for consumers and businesses, he said. Combined with tax cuts, the improving financial conditions "should bolster economic activity".
Greenspan said the Fed remains on guard against deflation, which he called a pernicious, albeit remote risk to the US economy. "At its June 24-25 meeting the Open Market Committee discussed at length the possibility of using alternative monetary policy tools and rejected it," he said.
"Given the highly stimulative stance of monetary and fiscal policy and well-anchored inflation expectations, the committee concluded economic fundamentals are such that situations requiring special policy actions are most unlikely to arise," the Fed chairman said.
Greenspan said such low interest rates would create complications for some financial firms whose fees would exceed the amount they would be able to pay in interest.
The Fed expects the personal consumption expenditure price index an inflation measure tied to gross domestic product to rise by 1.25% to 1.5% this year.