Market forces and likely action by Washington to cut its budget deficit "appear poised" to stabilise the record US trade gap, Federal Reserve chairman Mr Alan Greenspan said today.
"Besides market pressures, which appear poised to stabilise and over the longer run possibly to decrease the US current account deficit and its attendant financing requirements, some forces in the domestic US economy seem about to head in the same direction," Mr Greenspan said in remarks prepared for delivery at a conference hosted by the British Treasury.
"The voice of fiscal restraint, barely audible a year ago, has a least partially regained volume," the influential Fed chief said in an apparent nod to the Bush administration's pledges to hold down government spending.
In November, Mr Greenspan had said the United States should reduce its budget deficit to protect its economy from an inevitable dwindling of the overseas appetite for dollar assets.
His comments today suggested more comfort with the likely direction of US fiscal policy. Analysts also said Mr Greenspan seemed more optimistic growth in US current account gap would stabilise.
The dollar, which had fallen steeply earlier in the day on a weak US jobs report, more than recovered on Greenspan's comments.
Mr Greenspan said the willingness of overseas businesses that export to the United States to accept lower profits, which has helped hold down US import prices, may wane if the dollar fell further.
"We may be approaching a point, if we are not already there, at which exporters to the United States, should the dollar decline further, would no longer choose to absorb a further reduction in profit margins," he said.
Mr Greenspan said higher US import prices would cut the volume of imports "but leave the resulting value of imports uncertain."
The Fed chief said an apparent increase in profits enjoyed by US exporters was a good omen both for future exports and the likelihood the shortfall in the US current account, the broadest measure of the nation's trade, would lessen.