US consumers and businesses are financially fit enough to take an interest rate rise, Federal Reserve chairman Alan Greenspan said on Thursday.
On Tuesday, Greenspan and fellow policymakers indicated the days of rock-bottom rates -- with the federal funds target rate at a 1958 low of 1.0 percent for the past 10 months -- were numbered.
Rates could eventually rise at a "measured" pace, they said.
Private economists widely expect the rate increase to come this summer, possibly as early as the June 29 to June 30 meeting of the central bank.
The impact should not be too much of a shock, the Federal Reserve boss told a Chicago banking conference via satellite from Washington, stepping up a campaign to prepare markets for the switch.
The sizzling housing market was unlikely to crash, much household debt was secured on fixed interest rates, and businesses had strengthened their balance sheets, Greenspan said.
"A softening in housing markets would likely be one of many adjustments that would occur in the wake of an increase in interest rates," the 78-year-old central bank chief predicted.
"But a destabilizing contraction in nationwide house prices does not seem the most probable outcome. Indeed, nominal house prices in the aggregate have rarely fallen and certainly not by very much," he said.
Some analysts had suggested that an extended period of low interest rates was inflating a US housing price bubble, which would "implode" at some point, forcing homeowners to sharply curtail spending.
But, although housing prices had gone up faster than rents, suggesting a possible "price misalignment" in some markets, an implosion seemed unlikely, he said.
Except for those who had run-up extreme loads of debt, households did not face significant financial strain even as the overall level of indebtedness had grown over the past half century, Greenspan said.
"With interest rates low, debt service costs for households are average, or only marginally higher than average," he said.
"Even should interest rates rise materially further, the effect on household expenses will be stretched out because four-fifths of debt is fixed rate of varying maturities, and it will take time for the debt to mature and reflect the higher rates," he said.
Businesses, too, seemed to be in a solid position.
"There appears, at the moment to be little concern about corporate financial imbalances," Greenspan said.
"Debt-to-equity ratios are well within historical ranges and the recent prolonged period of low long-term interest rates has enabled corporations to fund short-term liabilities and stretch out bond maturities," he said.
In Europe, the European Central Bank held borrowing costs steady on Thursday, although economists say it may soon cut interest rates to try to breathe new life into a sluggish eurozone economic recovery.
But the Bank of England raised the cost of borrowing for the third time in six months to tackle rampant house prices and consumer debt as a British economic recovery gathered pace.
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