Federal Reserve Board Chairman Alan Greenspan warned Wednesday that the central bank may not cut short-term rates the next time stock prices tumble.

"We need to react to changes in financial markets, as we did this fall, but our objective is the maximum sustainable growth of the U.S. economy, not particular levels of asset prices," Mr. Greenspan told the House Ways and Means Committee.

Mr. Greenspan said the Fed cut rates 50 basis points this fall to rescue the debt markets, which were suffering from a crisis of confidence. "We were not attempting to prop up equity prices, nor did we have a plan to continue to ease rates until equity prices recovered," he said.

The warning was significant because Mr. Greenspan used his first Capitol Hill appearance of the year to reiterate his concern that the stock market may be overvalued. "The level of equity prices would appear to envision substantially greater growth of profits than has been experienced of late," he said.

The comments indicate that the Fed would accept a 10% to 15% correction in stock prices, said Henry Willmore, senior economist at Barclays Capital, the markets division of Barclays Bank PLC. "They wouldn't view that as imposing too big of a drag on growth," he said.

Overall, Mr. Greenspan called the economy's performance "outstanding," saying growth is solid, capital is flowing to businesses and households, and inflation remains contained.

Separately on Wednesday, the Fed reported that demand for commercial credit was mixed around the country, with healthy growth in Atlanta, declining growth in New York, and no growth in Dallas.

Demand for residential mortgages was strong across the country, the Fed said in the Beige Book, its periodic review of the country's economy. Refinancing activity was especially strong in the Atlanta region, and Philadelphia reported an increase in new-home mortgages.

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