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INFLATION STILL SUBDUED, GREENSPAN SAYS

Federal Reserve Chairman Alan Greenspan reaffirmed Wednesday that he believes inflation pressures in the U.S. economy are subdued.

At the same time, Greenspan said that consumer spending has not shown a "sharp deterioration," which suggests that individuals continue to have considerable confidence in the economy despite rising layoffs.

Greenspan's comments, made in response to questions from Senate Banking Committee members, did not shed much new light on whether the Fed will cut its key short-term interest rate target again at its June 26-27 policy meeting, or by what amount.

The Fed has already cut rates five times this year, each time by one-half point.

Greenspan told the Senate panel that the Fed has seen no evidence that the rise in labor costs "is being passed through to final prices in any material way," he said.

Similarly, most of the "extraordinary" rise in energy prices is not lifting prices of consumer goods, but rather is "squeezing profit margins," he said.

Overall, the "core" inflation rate has been "relatively stable," but the Fed must be careful to keep inflation under wraps, Greenspan said.

While those comments could be viewed as supporting the case for a larger interest rate cut, Greenspan also emphasized that the rise in layoffs has yet to cause a major drop in consumer spending.

"To be sure, consumer expenditures have not gone up in a material way, but they have held their own," Greenspan said.

Greenspan also emphasized that he remains optimistic on the outlook for U.S. productivity growth and said the first-quarter drop in productivity is unlikely to persist in the second quarter.

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