The US Federal Reserve chairman signalled today he was ready to keep interest rates low for a "considerable" time to lift the economy and ward off the threat of a dangerous fall in prices.
Mr Alan Greenspan also said there is room for the central bank's policy-setting Federal Open Market Committee (FOMC) to reduce rates beyond their current 45-year low of 1 per cent if the economy fails to rebound strongly enough.
"The FOMC stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance," Mr Greenspan told the House of Representatives Financial Services Committee in his semi-annual monetary report.
Fed officials have recently discussed some unconventional ways they might act to combat deflation, such as intervening in the bond market to push down long-term rates.
But Mr Greenspan's latest comments made clear the Fed's traditional tool of cuts in short-term interest rates would remain its first line of defence against the deflation risk.