June 15 (Bloomberg) -- Inflation is ``not likely to be a serious concern,'' and the Federal Reserve can stick to its plan for measured increases in the benchmark interest rate unless that changes, Fed Chairman Alan Greenspan said.

``Our best judgment is that the economy is growing in solid fashion,'' Greenspan, 78, told the Senate Banking Committee during a hearing to confirm him for a fifth term as Fed chairman. ``Inflationary pressures are not likely to be a serious concern in the period ahead.''

Greenspan and other central bank officials have been working to convince investors and executives the Fed can raise interest rates fast enough to brake accelerating prices without creating havoc in financial markets or the economy. The Fed hasn't raised the benchmark interest rate, at a 46-year low, since May 2000.

Guiding markets through transitions and crises while controlling inflation has been a hallmark of Greenspan's chairmanship since he took office in August 1987, appointed by Ronald Reagan. Greenspan steered the economy through the stock market crash in 1987, the Asian financial collapse in 1997, and the Russian bonds default and failure of Long-Term Capital Management, the hedge fund, in 1998.

President George W. Bush said in nominating Greenspan that he has done a ``superb job'' managing the economy. ``I have great continuing confidence in his economic stewardship,'' Bush said in a written statement on May 18.

Richard Shelby, Republican of Alabama and chairman of the Senate Banking Committee, said today his panel will approve Greenspan's nomination ``as expeditiously as possible.'' Andrew Gray, a spokesman for the committee, said it may vote as soon as Thursday. Greenspan's present, four-year term expires next week.

Consumer Price Index

Greenspan's comments and today's Labor Department report showing a 0.2 percent increase in the core consumer price index for May reassured investors that the Fed doesn't have to speed up rate increases. U.S. Treasuries rose after losing ground last week, when Greenspan and other Fed officials suggested they might accelerate rate increases should inflation exceed expectations.

The central bankers have left the U.S. benchmark overnight lending rate at 1 percent, the lowest since 1958, since last June. With the economy growing the fastest in almost two decades, Fed officials said after their May 4 policy meeting that they would begin raising borrowing costs at a ``measured'' pace. Policy makers meet again June 29-30.

``A 25 basis point increase is very much set for the June meeting,'' said Bill Quan, director of research at Mizuho Securities USA Inc. in Hoboken, New Jersey, one of 23 primary dealers of U.S. government securities that deal directly the Fed. Greenspan's testimony and the figures on consumer prices ``show that the fears about inflation have been misguided.''

The Fed had cut rates 13 times

Market Reaction

The benchmark 10-year Treasury note rose by the most since January 2001. The 4 3/4 percent note due May 2014 surged almost 1 1/2 points, pushing its yield down 19 basis points to 4.68 percent at 5:33 p.m., according to New York-based Cantor Fitzgerald LP. That was the biggest decline in yield since Jan. 9. The 10-year note had been about 1 point before Greenspan started his testimony.

Trading in fed funds futures shows investors expect the Fed to raise interest rates by a quarter-percentage point at the end of this month and again in August.

The Labor Department today said consumer prices rose at a 3.1 percent annual rate for the 12 months ending in May, up from a 2.3 percent pace in April. For May itself, prices rose 0.6 percent, or 0.2 percent when volatile food and energy costs were backed out. On that basis, inflation was slower than April's 0.3 percent gain.

Some Wage Pressures

The Fed had concluded in its most recent policy statement ``that the removal of an increasingly unnecessary degree of accommodation in monetary policy is very likely to be measured over the quarters ahead,'' Greenspan said. ``If our judgment as to how the economy is going to evolve, and how inflation is going to evolve, turns out to be mistaken, we will change.''

Higher energy prices have not yet hurt the economy, and an increase in unit labor costs has been modest, Greenspan said.

``The issues that would concern us most is the slowdown in the extraordinary rate of productivity because average hourly compensation has been edging up,'' he said. That combination, if continued, would raise unit labor costs, which account for two- thirds of non-farm business cost.

Greenspan said uncertainty ``is the defining characteristic'' of the U.S. economy today, and monetary policy ``has come to involve, at its core, crucial elements of risk management.'' The ``performance of the U.S. economy has been most impressive in recent years in the face of staggering shocks,'' he said.

Managing Expectations

The CPI measure of so-called core inflation, or prices minus the volatile food and energy components, rose 1.7 percent for the 12 months ended May, the Labor Department reported today. That's slower than the 1.8 percent rate in April, and within the preferred range of some Fed officials.

U.S. households have borrowed heavily and may be very sensitive to changes in the cost of money. According to the Fed's own data, household debt, the bulk of it in the form of mortgages, rose at a 10.9 percent annual rate in the first quarter, the second-fastest rate since 1985.

``I am not actually concerned at this point that we are looking at a real serious consumer debt problem,'' especially when factoring in mortgage debt, which adds an asset to consumer balance sheets in the form of a home, he said.

As for rising housing prices, ``there's been a faster pace today, but not enough to raise major concerns,'' he said. ``It could become a problem if it were to accelerate further. We see little evidence that that's likely to happen.''

Confirmation Hearing

Not everyone is a Greenspan fan. In February, Banking Committee member Jim Bunning, a Kentucky Republican, called for Greenspan to resign. ``I have disagreed with you many times on your monetary policy actions,'' Bunning told Greenspan today. ``I will not be able to support your renomination.''

Greenspan supported tax cuts in 2001. At the time, the Fed was forecasting budget surpluses that would reduce the supply of U.S. Treasury securities, forcing a change in the way the central bank conducted monetary policy.

Today, after three rounds of tax cuts sponsored by Bush, the U.S. is running deficits: $374 billion last year and a projected $450 billion in the current fiscal year.

``I am less concerned about the short-term budget deficit,'' Greenspan said today. ``Given what appears to the fairly solid recovery, which seems to have legs, that will contain the deficit.''

Rate Strategy

Greenspan reiterated that deficits must be pared over the long-term to ensure the country can afford social welfare programs with the retirement of the baby boom generation. ``It is not far enough into the future to say we can handle it at another time,'' Greenspan said, adding that the size of the commitments made to retirees, is ``disturbing.''

The Fed's low-rate strategy over the past year has supported an economy that is expected to expand 4.6 percent in this election year, according to the median estimate of 52 economists surveyed by Bloomberg News. Also, eleven consecutive quarters of growth are producing more jobs. The economy has created 1.2 million jobs since December.

Greenspan increased his contact with White House personnel last year, logging 68 visits compared with 55 in 2002 and 37 in 2001, according to documents provided by the Federal Reserve. Ten of the White House meetings in 2003 and 2002 were with the president's Council of Economic Advisers; Greenspan met with the CEA 7 times in 2001.

Remaining Time at Fed

Former colleagues expect Greenspan to step down in February 2006 when his separate, non-renewable term as a Fed governor expires. That gives him about a year and a half to bolster his legacy and ensure the expansion is on solid footing before leaving.

The timing of the nomination is convenient for the winner of the November presidential election, allowing for a brief overlap before either Bush or challenger John F. Kerry would need to appoint a new chairman.

The next president, whoever that is, will likely have a strong economy, Greenspan said today.

Accomplishments

Greenspan was born on March 6, 1926, in New York City. He graduated summa cum laude with a B.S. in economics from New York University in 1948, going to earn a master's in economics in 1950, and a doctorate in economics in 1977.

Before coming to the Fed, Greenspan was chairman and president of economic consulting firm Townsend-Greenspan & Co. Inc. He also served as chairman of President Ford's Council of Economic Advisers from 1974 to 1977, before chairing the National Commission on Social Security Reform from 1981 to 1983.

As chairman, Greenspan pushed a strategy of preempting inflation by moving quickly to raise interest rates when prices began rising. The consumer price index excluding food and energy was rising at a 4 percent annual rate the year before he took office.

Greenspan also steered the Fed toward greater transparency. In July 1995, for example, the central bank began announcing its target for the overnight lending rate, the benchmark for U.S. borrowing costs.

Greenspan has served under four presidents, and his 16-year chairmanship to date already is the second longest, after William McChesney Martin Jr., who was chairman for almost 19 years from 1951 to 1970. Greenspan has run the central bank during two recessions -- one that started in July 1990, when Bush's father was president, and a second that began in March 2001, two months after Bush took office. Both slumps ran just eight months.

Economists say Greenspan's management of the U.S. central bank has secured his place in history. ``You don't need to be congratulated on the success of your policies because it has been so obvious and so striking,'' Nobel Prize-winning economist Milton Friedman told Greenspan in October.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net