September 17, 2007 / 1:49 PM / 12 years ago

Greenspan: Recession chances now higher

WASHINGTON (Reuters) - Chances the economy will fall into a recession have risen as a result of the prolonged housing slump, former Federal Reserve Chairman Alan Greenspan said on Monday.

“Earlier in the year, I was talking about a one-third probability of a recession,” Greenspan said in an interview with Reuters. “It’s come up somewhat, but it’s still at this stage somewhat less than 50 (percent).”

He said the biggest risk to the outlook for the U.S. economy would be a substantial fall in house prices. The economy could weather a mild decline in house prices as long as new home construction slows and inventories of unsold homes clear, the former Fed chief 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.

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