Mumbai: Alan Greenspan, former chairman of the US Federal Reserve, said the interest rate cut by the Fed this week had lowered the risk of a recession.

Greenspan said the chances of a recession in the United States, however, were still "somewhat more" than 1 out of 3, despite the cut in the Fed''s overnight federal funds rate to 4.75 per cent.

"But, remember, we still have a problem out there, which is a large overhang of unsold newly constructed homes," Greenspan said during an interview.

Greenspan told the Austrian magazine Format in Vienna that low interest rates in the past 15 years were to blame for the US house price bubble, but that central banks were powerless when they tried to bring it under control.

"It''s a difficult situation, there is an enormous overhang on the real estate market," Greenspan was quoted as saying. "Many buildings which just have been finished can''t be sold."

"So far, prices have dropped only slightly. But it was enough to cause alarm around the world," he said. "Prices are going to fall much lower yet," he added.

"However, it is too early to answer the question about a recession. We simply don''t know yet. It depends on how flexibly the economy can react," he said.

"The Federal Reserve began a series of interest rate increases in 2004. We were hoping to bring the speculative excesses in the real estate sector under control. We failed. We tried it again in 2005. Failure," Greenspan said.

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