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Greenspan Sees Growth Slowing as Stocks ‘Flatten Out’ (Update1)

By Albert R. Hunt and Rich Miller

Sept. 30 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said he sees the U.S. economy slowing next year as the surge in stocks comes to an end.

“The odds are we flatten out,” Greenspan said today in a Bloomberg television interview, referring to the equity market. “That flattening out will put some sort of dull face on 2010.”

Greenspan said he expects the economy to grow at a 3 percent to 4 percent annual pace in the next sixth months before slowing down. As a result, unemployment isn’t likely to decline much from last month’s 9.7 percent rate, he said. Even so, he doesn’t expect the economy to relapse into recession next year.

The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in more than a year, revised figures from the Commerce Department showed today in Washington. U.S. gross domestic product contracted at a 6.4 percent pace in the first three months of 2009.

Growth will be boosted in coming months by the inventory cycle as companies bring stockpiles of goods into line with sales, Greenspan said. The Standard & Poor’s 500 Index has jumped 55 percent since its low for the year on March 9, an ascent that’s had a “very positive” impact on the economy, he said.

The former Fed chief said the economic recovery won’t prevent continued downward pressure on consumer prices.

“We are still by any measure in a disinflationary environment,” said Greenspan, 83.

The risk in the longer term is that inflation will accelerate if the Fed fails to rein in the stimulus it has pumped into the economy, he said, adding that the central bank’s $2 trillion balance sheet is “not sustainable.”

He also voiced concern that political pressure would prevent the Fed from taking actions necessary to keep consumer prices in check.

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