Fed: Solid Growth Means More Hikes

Federal Reserve Chariman Alan Greenspan gestures during a Senate Banking Committee hearing on Wednesday, Feb. 16, 2005 in Washington. Greenspan urged a go-slow approach on personal Social Security accounts, saying that while he embraces the idea central to President Bush's proposed overhaul, he is concerned about stability in financial markets. (AP Photo/Evan Vucci)
Federal Reserve Chairman Alan Greenspan said Wednesday the economy should enjoy sustained growth with low inflation in coming months, a strong condition that will require continuing incremental increases in interest rates.

Greenspan delivered a basically upbeat assessment of the economy's prospects in an appearance before Congress, saying the country had weathered a brief slowdown in the spring when inflation had appeared to be on the rise.

And he made clear in his final midyear economic report to lawmakers that the Federal Reserve Board would continue raising interest rates at the same gradual pace it has for the past year.

"Our baseline outlook for the U.S. economy is one of sustained economic growth and contained inflation pressures," he said in testimony before the House Financial Services Committee.

"In our view, realizing this outcome will require the Federal Reserve to continue to remove monetary accommodation," Greenspan said, referring to the Fed's string of credit tightening moves over the past year.

But, as CBS News Correspondent Trish Regan reports, his sunny forecast isn't being felt on the factory floor: Kodak is cutting up to 10,000 jobs, while Hewlett-Packard announced 14,500 layoffs.

And, as Regan reports, it isn't being felt on the streets, where reality trumps forecasts.

"Alan Greenspan says the economy is doing fine - seeing a lot of growth, I disagree with that," said 25-year-old Shannon Hernandez, a recently laid-off teacher's aide. "The economy cannot be doing so good if they're laying off so many people, so it's not good at all."

The Fed has pushed the federal funds rate, the overnight borrowing rate for commercial banks, from a 46-year low of 1 percent in June 2004 to its current level of 3.25 percent in a series of quarter-point moves.