US FEDERAL Reserve chairman Mr Alan Greenspan has defended the Fed's recent rise in interest rates as a "prudent" anti-inflationary move aimed at ensuring sustained US economic growth.

In a speech at New York University, Mr Greenspan alluded to the sharp criticism that followed the Fed's March 25th decision but insisted his goal "had never been to contain inflation as an end in itself". He said the Federal Reserve's policy-making Open Market Committee increased short-term interest rates "as a form of insurance".

"It was a small prudent step in the face of the increasing possibility that excessive credit creation, spurred by an overly accommodative monetary policy, might undermine the sustained economic expansion," he maintained.

The committee in March raised its benchmark federal funds rate, a target rate charged by banks making overnight loans among themselves, by a quarter of a percentage point to 5.5 per cent. The rise came in the absence of any immediate inflationary threat and consequently sparked a firestorm of criticism among pro-growth Democrats as well as some business leaders. They accused the Federal Reserve of mounting a campaign against a non-existent enemy and in the process harming the interests of US workers and families. Mr Greenspan argued the economy's six-year expansion was rooted in the maintenance of low inflation.

The US economy expanded at a 5.6 per cent annual rate in the first quarter of the year, its fastest growth in a decade. The torrid pace has led some analysts to predict yet another increase in rates when the Open Market Committee convenes on May 20th.

But others have pointed to signs of a slowdown in the second quarter - to between 2.5 and 4 per cent - and have predicted no change in monetary policy later this month.