Greenspan said the economic slowdown in the U.S. has been intensified by the rise in the cost of energy but going forward, market forces are likely to contain further increases in gasoline prices. Greenspan said despite the deterioration in CPI and expected inflation, "there has been little acceleration in the broader index of core personal consumption expenditure prices."
He said inflation is "low and likely to be contained." In describing economic conditions over the past two quarters, Greenspan said a classic inventory correction developed after the economy began to slow last fall.
By the end of the first quarter, "the inventory of cars and trucks had fallen to a more satisfactory 61 days supply, though some uptick in light truck inventories was apparent in April," Greenspan said. However, "a period of substantial liquidation still appears ahead" for the high-tech sector, Greenspan said.
At some point, inventory liquidation will come to an end and its termination will boost the economy, while the timing and strength of this pickup will depend on the strength of final demand.
"In that regard, consumer spending has been soft, but seems, for the moment at least, not unduly so," he said.
If demand holds up, the rate of inventory liquidation must slow, and production and imports would rise.
"While such a scenerio is likely to develop at some point in the period ahead, there are, nonetheless, considerable uncertainties about its timing and magnitude," Greenspan said.