In his first major remarks on the economy since July, Greenspan said that even though business activity is picking up, inflation remains low, meaning the Fed "is able to be more patient" than in past recoveries about raising interest rates. But he added that "no central bank can ever afford to be less than vigilant" about inflation, and warned that the long-term economic outlook could be jeopardized unless Congress reined in record deficits.

The Fed chairman's remarks came as the Labor Department reported that productivity, the measure of output per worker, rose at a blistering 8.1 percent annual pace in the third quarter of the year. In a separate report, the department said initial claims for unemployment benefits fell sharply to 348,000 in the week ended Nov. 1, a sign that the "jobless recovery" might be abating. Claims were at the lowest level since January 2001.

Rapid productivity has helped businesses increase profits, despite the fact that they have limited room to raise prices. But it has also kept a lid on hiring. Some Fed officials expect productivity gains to slow in coming months, which should help hiring.

Public optimism about the economy also is on the upswing. A USA Today/CNN/ Gallup Poll shows that 53 percent of those surveyed earlier this week said the economy was getting better, up from 47 percent two weeks ago. That's the highest level in 19 months, and more than double the 23 percent who said it was getting better in March, a low point in the Bush presidency.

The poll was taken after the government reported the economy grew at a 7.2 percent annual rate in the third quarter ended in September. Many economists expect growth to slow to a respectable 4 percent pace ahead.

Greenspan said the third-quarter pace was unsustainable, but pointed to positive signs — including higher business spending and a need by firms to replenish low inventories — that should support a healthy economy in coming months.

"The odds, however, do increasingly favor a revival in job creation," Greenspan told the Securities Industry Association, meeting in Boca Raton, Fla.

At the same time, the Fed chairman noted that businesses still appear to have little pricing power. He said consumer spending — more than two-thirds of the economy — could take a hit if the jobs don't come back.

The Fed has cut interest rates to a 45-year low of 1 percent to stimulate growth and ward off deflation, a widespread fall in prices. Fed officials have vowed to keep rates low for a "considerable period." High Frequency Economics' Ian Shepherdson says Greenspan's comments indicate that the Fed will not raise rates soon, but that it could move faster than expected if growth holds up.