In his usual enigmatic way, Mr Alan Greenspan managed to convey to Wall Street yesterday that, as the US economy was on the mend and inflation under control, the days of cheap money would last well into the summer, writes Conor O'Clery, International Business Editor, on Wall Street.

But in testimony to a US Congress committee, the Federal Reserve chairman warned that a sharp increase in the price of oil could - if the history of the last half-century was taken as a guide - bring about another slowdown.

Crude oil has increased by 50 per cent since January due to instability in the Middle East and Venezuela, and petrol prices have gone up by 8 per cent in March.

"The US economy has displayed a remarkable resilience over the past six months in the face of some very significant adverse shocks," Mr Greenspan said, and there was still "little or no evidence of inflationary pressures building".

These remarks were taken by analysts as a sure sign that short-term bank lending rates would remain unchanged at the Fed's next meeting on May 7th. The target rate is 1.75 per cent, the lowest since the early 1960s.

At the same time, Mr Greenspan cautioned that "the strength of the economic expansion that was under way remained to be clarified" and "the dimensions of the pickup are still not clear". The Fed chairman's assessment follows some contradictory data in recent days. Consumers are still spending strongly and industrial production in March had its biggest gain in two years, but unemployment is rising and March retail sales were weaker than expected.

The behaviour of inventories currently is the driving force in the near-term outlook, Mr Greenspan said. Stocks of goods were down significantly and the pace of liquidation had tapered off markedly in the first quarter, inducing a rise in industrial production. "One important source of support to household spending late last year - energy prices - will likely be less favourable in the months ahead," he said, however. "With the rise in world crude oil prices since the middle of January, higher energy costs are again sapping the purchasing power of households."

Mr Greenspan warned that "all economic downturns in the United States since 1973, when oil became a prominent cost factor in business, have been preceded by sharp increases in the price of oil."

• The US trade deficit widened 11 per cent in February as the improving economy sucked in more imports. The deficit in goods and services widened to $31.5 billion (€35.45 billion) from $28.2 billion in January, the Commerce Department said yesterday. This was the largest trade deficit since April 2001, and analysts said it reflected a US economy that was growing faster than that of US trading partners. - (AFP)