( Reuters ) - Former Federal Reserve Chairman Alan Greenspan said his successors at the U.S. central bank should act cautiously in lowering interest rates because of inflation risks, according to an interview published on Sunday.
Greenspan said the Fed should be careful not to cut rates too aggressively because the risk of an "inflationary resurgence" is greater now than when he was chairman, the Financial Times reported.
The U.S. central bank meets on Tuesday and is widely expected to cut benchmark federal funds rates by at least a quarter-percentage point to help the economy weather a housing downturn and a credit crunch.
Greenspan said the U.S. housing slump is likely to deepen more than many analysts expect, recording as much as a double-digit drop.
The Fed is currently weighing the adverse impacts of the housing downturn on the broader economy, and recent report employers shed 4,000 jobs in August raised warning flags.
Greenspan said he would expect "as a minimum, large single-digit" percentage declines in U.S. house prices from peak to trough, the newspaper reported. The former Fed chair said he would not be surprised if the drop was "in double digits."
UNDERLYING STRENGTH
But Greenspan, who is promoting a memoir that hits bookstore shelves on Monday, said that while home prices have not yet hit bottom, turmoil in housing and credit markets does not look like it will produce a broader economic downturn.