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Presenting his semiannual report on monetary policy to a House committee, Greenspan said economic growth could reach 5 percent this year, unemployment would decline slightly and inflation appeared set to remain very low.
But he also warned about the rapidly rising federal budget deficit, saying that the prospect of big shortfalls for the foreseeable future could lead to higher interest rates in the near future and bigger fiscal problems as the baby-boom generation begins to reach retirement age in the next decade.
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Greenspan repeated his concern that "progress on creating jobs has been limited" and said the economy should be able to have an unemployment rate well below the current level of 5.6 percent without generating inflation.
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Greenspan did not criticize Bush's budget plan, nor did he offer an opinion on the president's plans to make his tax cuts permanent. That would increase the projected deficit by more than $1 trillion over the next 10 years, even if the government virtually freezes discretionary domestic spending.
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Greenspan warned that the budget deficit was linked to the nation's overall global indebtedness because the United States increasingly depends on foreign investors to finance its borrowing.
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