Greenspan sees U.S. economic toll from credit crunch

By Pedro Nicolaci da Costa

NEW YORK (Reuters) - The credit crunch that has troubled financial markets in recent months will eventually take its toll on the U.S. economy, former Federal Reserve Chairman Alan Greenspan said on Wednesday.

Greenspan, who many now blame for inflating the housing bubble during his tenure, said home prices would almost certainly fall and that the slump will eventually prompt consumers to cut back spending.

"When you get house prices flattening out, you begin to get pressures on consumption," Greenspan told the World Business Forum at New York's Radio City Hall.

He added that rising stock prices, which pushed major indexes to a record this week, could help offset the drop in the value of home equity.

Greenspan has been an active commentator on the economy since leaving the Fed in early 2006. His pronouncements have roiled financial markets at times, though the frequency of his recent appearances have diluted their impact.

His record has also come under attack, with some critics lambasting him for inflating asset bubbles and undermining fiscal discipline in Washington. Greenspan has defended his policies, saying global forces out of the central bank's control have dictated the path of long-term borrowing costs.

Greenspan said the rate of U.S. economic growth was slowing, but the odds of a recession were less than 50 percent.

Concern that a credit crunch and financial market disarray could hit the U.S. economy prompted the Fed to cut interest rates sharply last month, even though it was unclear how serious any damage could be.