Bank of Montreal economists say that speaking before the U.S. Congress on Wendesday, Federal Reserve chairman Alan Greenspan confirmed that the Fed is likely to raise U.S. interest rates later rather than sooner.

“Expressing concern that the recovery might slow, Greenspan’s comments suggest the Fed’s first volley in unwinding the massive amount of monetary stimulus in the U.S. economy will arrive in late June at the earliest. And if the data do indeed raise doubts about the strength of the recovery, interest rates could be on hold for even longer,” it says.

BMO notes that Greenspan acknowledged that “the economy, bolstered by a marked swing in inventory investment, is expanding at a significant pace.” However, it says that he also highlighted several downside risks to the economic outlook, including, the exhaustion of pent-up demand, and the possibility that rising energy costs/debt burdens and weakness in stocks could undermine household spending.

Greenspan also stressed that there is no need to quickly unwind the stimulus because “prospects for low inflation and inflation expectations in the period ahead mean that the Federal Reserve should have ample opportunity to adjust policy to keep inflation pressures contained once sustained, solid, economic expansion is in view.”

BMO says that Greenspan’s comments are consistent with its view that the Fed will not hike rates at the May 7 FOMC meeting and will wait until June 25/26 to begin tightening policy. “Looking further ahead, provided the recovery unfolds as anticipated, the fed funds rate is expected to climb steadily from its current 40-year low of 1.75% to 3.25% by year’s end and to 5.50% by the middle of next year. However, any indication that the expansion is faltering would delay and temper the tightening cycle.”