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Fed to support rising interest rates: Greenspan

WASHINGTON: Federal Reserve Chairman Alan Greenspan said on Thursday the U.S. central bank is intent on defusing mounting imbalances in the booming economy and will support higher borrowing costs to prevent it from overheating.

Sending a clear signal that a rise in short-term official U.S. interest rates is imminent, Greenspan told the Economics Club of New York that the Fed did not have the luxury to wait until the forces shaping the fast-changing U.S. economy come into clearer focus.

Blaming a "huge" rise in equity prices for increasing consumer wealth and driving aggregate demand to a point where supply could not keep pace without fanning higher inflation, Greenspan said rising interest rates were the only way to restore balance in the world's biggest economy.

"In the end, balance is achieved through higher borrowing rates," he said, adding that a recent rise in market interest rates was "supported by a central bank intent on defusing the imbalances that would undermine the expansion." A copy of his remarks was released in Washington.

Greenspan said there was no sign of inflation pressures yet despite labour market conditions that were tighter than at any point in the past generation. But he warned that such signs of rising imbalances could bring the "economic expansion, its euphoria, and wealth creation to a debilitating halt."

Fed policymakers meet on Feb 1-2 amid expectations in world financial markets that they will raise the key federal funds overnight bank lending rate by a quarter percentage point to 5.75 percent, its fourth increase in seven months aimed at keeping inflation at bay.-Reuters