U.S. Fed: Stability A Must

WASHINGTON -- Federal Reserve Chairman Alan Greenspan said Tuesday long-run price stability was a key condition for creating maximum sustainable economic growth, giving a boost to financial markets around the globe.

The central bank chief, speaking days before the 10th anniversary of the 1987 stock market crash, called the shift to a low-inflation environment the "most important development" of recent years.

Debt and foreign exchange markets were heartened by Greenspan's remarks amid widespread relief that he did not repeat last week's critical comments on the sustainability of the U.S. expansion and the stock market boom.

"It is important that we maintain a credible long-run commitment to price stability," Greenspan told the 15th Annual Monetary Conference of the Cato Institute. "It is incumbent upon us to endeavor to produce the same noninflationary environment as existed a century ago, if we seek maximum sustainable growth."

He added: "In this regard, doubtless, the most important development that has occurred in recent years has been the shift from an environment of inflationary expectations ... toward an environment of lower inflation."

The central bank chief warned that new technologies and the globalization of finance, while bolstering world financial independence and efficiency, had also served to increase the risk of market failures and crashes.

"There is a clear sense that the new technologies, and the financial instruments and techniques they have made possible, have strengthened interdependencies between markets and market participants, both within and across national boundaries," Greenspan said.