Alan Greenspan told US Congress yesterday that the Federal Reserve would continue to raise interest rates, dispelling market speculation that the cycle of rate rises was about to end.

The Fed chairman reassured the congressional joint economic committee about the health of the economy, saying there had been ups and downs, due to volatile oil prices, but overall performance had been satisfactory, with the US expanding at a rate of 3.7 per cent rate over the last year.

"Most recent data support the view that the soft readings on the economy observed in the early spring were not presaging a more serious slowdown in the pace of activity," Mr Greenspan said.

"The economy seems to be on a reasonably firm footing and inflation remains contained."

However, he said inflation risks were still a concern and repeated the Federal open market committee's statement from its May meeting that "policy accommodation can be removed at a measured pace".

There had been speculation the Fed might be close to the end of its tightening cycle, following recent weaker economic data.

Bond prices fell slightly after Mr Greenspan's comments and the dollar rose to a nine-month high, but later slipped back.

"He did not say how many more rate increases they expect there will be," said Ethan Harris, economist at Lehman Brothers.

The Federal open market committee will meet at the end of this month, at which its members update their economic forecasts, before Mr Greenspan delivers one of his twice-yearly testimonies before Congress in July.

The Fed chairman highlighted the slowdown in productivity growth, and said this had contributed to uncertainty about inflation. Although wage growth had been subdued, slower productivity had contributed to rising unit labour costs, one of the indicators of inflation pressure.

While the Fed has raised its target federal funds rate from 1 per cent to 3 per cent over the past year, the yield on the 10-year treasury note has declined from 4.7 per cent - just before the central bank started tightening policy - to just under 4 per cent.

Mr Greenspan reiterated the central bank's confusion over the fall in bond yields over the past year, part of a global pattern that had complicated the Fed's work.

Mr Greenspan repeated that while price declines in several markets could not be ruled out, this should not have "substantial" macroeconomic implications.