Nov. 3, 2005

Fed Chairman Greenspan voices optimism economy won't be substantially harmed by hurricanes

JEANNINE AVERSA
The Associated Press

WASHINGTON - Federal Reserve Chairman Alan Greenspan told Congress Thursday that fallout from the recent spate of devastating hurricanes should prove fleeting and that the economy remains sturdy.

The trio of hurricanes - Katrina, Rita and Wilma - is likely to "exert a drag" on employment and production in the short term and may aggravate inflation pressures, Greenspan said in prepared testimony to Congress' Joint Economic Committee.

"But the economic fundamentals remain firm, and the U.S. economy appears to retain important forward momentum," the retiring Fed chairman said in his most extensive remarks to date on the impact of the storms.

While the Fed chief sounded optimistic about the economy's prospects, Greenspan, who leaves early next year after 18 years, made clear that the Fed is keeping a close eye on high energy prices to make sure they don't spark broader inflation.

Although Greenspan didn't specifically mention the future course of interest rates, many analysts predict that borrowing costs will climb in the months ahead as the Fed seeks to combat inflation.