Greenspan Says Economy May Be Undergoing a `Pause'

Former Federal Reserve Chairman Alan Greenspan said the U.S. economy may be undergoing what he called a “pause,” and that he can’t rule out the possibility of a so- called double-dip recession.

“Of course, there’s a possibility,” Greenspan said in an interview on CNBC today. “The trouble is there’s always a possibility in both directions.”

Greenspan, who ran the central bank from 1987 to 2006, said “it’s more than likely” that a “pause” is occurring in the world’s largest economy. Inventory accumulation “has stopped” and production “has flattened out,” the 84-year-old former central banker said.

Companies added 83,000 workers to their payrolls in June, less than forecast by economists, the Labor Department report said last week. The report capped a month of data on housing and manufacturing that point to a slowdown in the economy.

Stocks rose today, giving the Standard & Poor’s 500 Index its first-three day rally since April, after the Labor Department reported that claims for unemployment benefits fell last week more than forecast and the International Monetary Fund raised its estimate for global growth in 2010.

“Stock market behavior over the last several days” has been “encouraging,” Greenspan said after S&P 500 index rose 0.9 percent to 1,070.25 at 4 p.m. in New York, its highest close since June 28. “Banks are scared, but, then again, so are businesses.’

Photographer: Brendan Hoffman/Bloomberg

Former chairman of the U.S. Federal Reserve Alan Greenspan testifies at a hearing in Washington. Close

Former chairman of the U.S. Federal Reserve Alan Greenspan testifies at a hearing in Washington.

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Photographer: Brendan Hoffman/Bloomberg

Former chairman of the U.S. Federal Reserve Alan Greenspan testifies at a hearing in Washington.

He added that there are “still huge imbalances in the flow of funds,” and that China’s currency remains “undervalued.” After he spoke, the U.S. Treasury Department released a report to Congress saying the yuan “remains undervalued,” while stopping short of branding the country a currency manipulator.

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

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