US rate rises will continue

Federal Reserve chairman Alan Greenspan said last night economic growth in the US was solid and the Fed would continue to increase the cost of borrowing.

Giving his last speech to the US Congress before he retires next year Mr Greenspan warned that the economy faced "significant uncertainties" from high energy prices, rising wages and a possible housing market bubble.

"Our baseline outlook for the US economy is one of sustained economic growth and contained inflation pressures," he told the House of Representatives financial services committee in the first of two days of a biannual testimony on the economy and monetary policy.

The Fed made only minor changes to its economic forecasts, shaving its predicted GDP growth for this year to 3.5% from 3.75% to 4.0%.

"In our view, realising this outcome will require the Federal Reserve to continue to remove monetary accommodation. This generally favourable outlook is attended by some significant uncertainties that warrant careful scrutiny," he said.

The Fed has raised interest rates in nine quarter-point steps since last June to 3.25%. Greenspan implied the increases in the cost of borrowing would continue to be gradual, citing the last Fed policy, which said rate rises would come at a "measured" pace.