Economists say that U.S. Federal Reserve Board chairman Alan Greenspan’s congressional testimony today, points to higher rates over the next couple of years.

The Bank of Montreal notes that Greenspan remains optimistic about the prospects for the US economy but somewhat concerned about the outlook for inflation. “Accordingly, he continues to see the need for higher interest rates,” BMO says.

“Back in May, most members of the [Federal Open Market Committee] agreed that measured pace was a reasonable characterization of the monetary policy stance and its likely evolution over time. We feel that today, Greenspan endorsed that view again,” suggests National Bank Financial. “He addressed concerns of those calling for a pause in rate hike as well as of those arguing for a much higher fed funds rate.” NBF expects to see a 4.0% fed funds rate by year end.

“The Chairman’s speech is consistent with our forecast for the federal funds rate to increase 25 basis points to 3.25% at the June 29/30 Federal Open Market Committee meeting,” BMO says. “Thereafter, we see the pace of tightening slowing to roughly every second meeting, though not stopping until the funds rate is at a more neutral level of 4.50% by the fall of 2006.”