WASHINGTON -- The Federal Reserve is ready to raise interest rates more quickly than its current "measured" pace if inflation suddenly worsens, chairman Alan Greenspan said Tuesday.
Still, Greenspan delivered a generally upbeat assessment of economic prospects to Congress, seeking to allay concerns that a pronounced dip of economic activity in June could turn into something more severe. He said a slowdown in consumer spending, which accounts for two-thirds of the total economy, appeared to be "short-lived," with preliminary indications that July growth was already rebounding.
The economy was moving through a "soft patch," based on a number of weaker-than-expected statistics in June, he said.
Delivering the Fed's midyear economic outlook to the Senate Banking Committee, Greenspan said that in most respects economic conditions through the first half of the year have "been generally quite favorable," with overall growth at a strong rate that has finally generated a significant rebound in job growth.
He did say inflation figures had risen, but he attributed much of the increase to "transitory factors" such as a spike in oil prices.
On June 30, the Fed, for the first time in four years, boosted its target for the federal funds rate, the interest that banks charge each other on overnight loans, by a quarter-point to 1.25 percent.