Greenspan: Economy Is Picking Up Momentum

The economy is picking up momentum but faces a number of problems including budget issues and inflation, former Federal Reserve Chairman Alan Greenspan told CNBC.

Alan Greenspan
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Alan Greenspan

Among the headwinds the economy faces are escalating oil prices and uncertainty about a budget deficit likely to hit $1.5 trillion this year.

But overall, he said there is reason for optimism.

"There is no question that the momentum of this economy, leaving out the oil price issue, leaving out Euro problems that have emerged, and very specifically leaving out the budget problems, this economy is really beginning to pick up momentum," Greenspan said. "The fascinating issue for forecasters is, how do you factor in all the negatives."

Greenspan spoke ahead of the Labor Department releasing the monthly unemployment report. The economy created 192,000 jobs in February, according to the Labor Department.

The role of the Fed in the economy is the subject of increasing debate. During his previous appearance on CNBC, he defended the central bank's efforts to create a wealth effect through pushing up prices on risk assets such as stocks.

Greenspan declined to comment directly on the Fed's approach is it faces the question of how to unwind the $2.3 trillion or so it has added to its balance sheet since the financial crisis began.

However, he did say he felt the Fed could start selling off the various assets it has accumulated—mortgage-backed securities, Treasurys and other debt—"without any significant consequences."

Of his successor, Ben Bernanke, who faced some tough questioning this week during a congressional hearing, Greenspan said, "I have considerable trust in his judgment."

However, he did criticize attempts at financial reform, saying the Dodd-Frank changes to the banking system were "internally contradictory."

"What we're going to find is the unexpected consequences of much of the new regulations that are going to come as a result of Dodd-Frank are going to be reversed," he said. "That is going to create very high degrees of uncertainty."

He also issued an inflation warning, adding another voice to the notion that ignoring rising food and energy prices and following traditional metrics such as the Consumer Price Index and output gap is not useful in gauging the real threat.

Even though interest rates remain low, that doesn't mean inflation isn't coming, he said.

"When people say rates are very low, the answer is: Wait," Greenspan said.