The recent increase in energy prices could affect the economic recovery, but only if it continues for some time. That was part of the message from Federal Reserve Chairman Alan Greenspan, testifying on Capitol Hill on Wednesday.

During testimony before the Joint Congressional Economic Committee, Greenspan said it is still unclear as to how strong the economic recovery for the United States is shaping up.
"The economy, bolstered by a marked swing in inventory investment, is expanding at a significant pace,” said Greenspan. "Nonetheless, the degree of strengthening in final demand over coming quarters, an essential element in sustained economic expansion, is still uncertain.”
He said he was encouraged there are economic signs pointing to a economic rebound but also said business investment this year is "likely to be gradual."
As for recent increases in energy prices, including recent jumps in diesel and gasoline costs, Greenspan said the effect on the economy has so far been minimal, but cautioned a bigger and more sustained upturn in prices would have “far reaching consequences.”
Greenspan also eased recent concerns the Federal Reserve could hike interest rates soon, saying that inflation is under control, despite energy price hikes. He said the Fed is in no rush to raise rates which are the lowest in 40 years, but noted the Untied States has to get better at managing its money.
"We have to be very careful about going back into deficit spending. The reason ... is that the evidence does indicate that if you start to run substantial deficits you will begin to move long-term interest rates, and the effect of that on the economy is clearly not favorable,” he said.
To read Greenspan’s entire testimony, go to www.federalreserve.gov/BoardDocs/Testimony/2002/20020417/default.htm.
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