Greenspan: Recession risk up

By Mark Felsenthal

WASHINGTON (Reuters) - Former Federal Reserve chief Alan Greenspan said on Monday there is an increased risk of a recession but cautioned that the Fed must still be on guard for a rise in inflation.

"Earlier in the year, I was talking about a one-third probability of a recession," Greenspan told Reuters. "It's come up somewhat, but it's still at this stage somewhat less than 50 (percent)."

He said the possibility of a large drop in house prices poses the biggest risk. A mild decline in home prices accompanied by a big pullback in construction that would help clear inventories would put the economy "in fairly good shape," Greenspan said.

"But if the whole thing festers, it will erode household balance sheets and eventually impact on what the critical support has been in this economy: consumer expenditures," he said.

The former Fed chairman spoke with Reuters and numerous other media outlets to publicize the release of his memoir, "The Age of Turbulence: Adventures in a New World."

The book, for which Greenspan was reportedly paid an $8 million advance, hit store shelves on Monday. It was the No. 1 seller on Web retailer Amazon.com.

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Its release comes as the spotlight turns to Ben Bernanke, the former Princeton University professor who succeeded Greenspan on February 1, 2006, and who now faces the biggest test of his tenure.