Any localized decline in inflated housing prices can be contained from a national standpoint, Greenspan said, although he added it could inflict damage on the local economies in question. He did not identify any of the areas involved.

In an appearance before Congress' Joint Economic Committee, Greenspan pronounced the U.S. economy "on a reasonably firm footing, with underlying inflation contained."

His upbeat outlook paralleled that of the Bush administration and private economists even while a growing number of people believe that the economy is not in good shape. His comments helped bolster stock prices on Wall Street.

Greenspan cited several economic risks, such as the possibility that the federal budget deficit could run out of control and that free trade might be restricted by protectionist sentiment in Congress.

In addition, he said the nation is "going to have to judge" whether shareholders, pension beneficiaries or taxpayers will bear the cost of a large number of underfunded pension programs in the U.S. He said there is a "big slug" of these troubled pension plans lurking on the horizon that would require a government decision on who is forced to bear the cost.

On the Fed's monetary policy, he signaled that the central bank likely would raise interest rates again modestly when it meets at the end of the month.

The Fed has increased its benchmark short-term interest rate eight times in the past year, raising it from 1 percent to 3 percent. This is part of its self-described "measured" effort to bring abnormally low interest rates back to a "neutral" level that would keep the economy growing and inflation under control.

Greenspan gave no indication when this series of increases would end. He said he doesn't know exactly what that elusive "neutral" interest rate is, but added: "We will probably know it when we are there, because we will observe a certain degree of balance, which we had not perceived before."

Pointing to some softening in the job market and a slackening of economic growth, many economists think the Fed is growing closer to a halt in rate increases.

At the same time, many analysts have expressed concern that a housing bubble has arisen in the U.S. as low mortgage rates have fueled more home buying and driven up prices nationwide.

In a recent interview, Dean Baker, co-director of the Center for Economic and Policy Research, a Washington think tank, said the housing bubble is extremely serious. If it bursts, he said, "it could be worse than the collapse of the stock market" at the end of the 1990s boom.

Greenspan took a less extreme view yesterday. "The U.S. has weathered such episodes before without experiencing significant declines in the national average level of home prices," he said.

He wouldn't rule out home price declines in some local markets, but said they "likely would not have substantial macroeconomic implications" if they were to occur.