Greenspan: U.S. trade gap could stabilize

Federal Reserve Board Chairman Alan Greenspan said on Friday market forces and likely action by Washington to cut its budget deficit “appear poised” to stabilize, and perhaps cut, the record U.S. trade gap.

“Besides market pressures, which appear poised to stabilize and over the longer run possibly to decrease the U.S. current account deficit and its attendant financing requirements, some forces in the domestic U.S. economy seem about to head in the same direction,” 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.

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Analysts have said a fall in the value of the dollar over the past 3 years had partially reflected nervousness over record U.S. budget and trade gaps.

Greenspan said the willingness of overseas businesses that export to the United States to accept lower profits, which has helped hold down U.S. import prices, may wane if the dollar falls further.

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“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.

Greenspan said higher U.S. import prices would cut the volume of imports “but leave the resulting value of imports uncertain.”