WASHINGTON, July 20 (UPI) -- Federal Reserve Chairman Alan Greenspan said Tuesday the nation's recent slowdown in consumer spending should prove short-lived.
The nation's top banker also said in testimony to the Senate Banking Committee that the central bank can continue to raise interest rates at a measured pace if inflation stays tame.
Greenspan told lawmakers economic developments in the country have been favorable in 2004 and the expansion is self-sustaining.
"Not only has economic activity quickened, but the expansion has become more broad-based and has produced notable gains in employment," Greenspan said in his monetary policy report to Congress.
The nation's top banker said, "The evident strengthening in demand that underlies this improved performance doubtless has been a factor contributing to the rise in inflation this year. But inflation also seems to have been boosted by transitory factors such as the surge in energy prices.
"Those higher prices, by eroding households' disposable income, have accounted for at least some of the observed softness in consumer spending of late, a softness which should prove short-lived," Greenspan said.
"The expansion has become more broad-based and has produced notable gains in employment," Greenspan said.
"If economic developments are such that monetary policy neutrality can be restored at a measured pace, a relatively smooth adjustment of businesses and households to a more typical level of interest rates seems likely,'' he said.
The Federal Open Market Committee raised the benchmark interest rate last month for the first time in four years, and said more increases may come at a "measured" pace if inflation stays tame.