(Former Fed Reserve Chairman) Alan Greenspan, sees the U.S. economy slowing down next year as the surge in the stock market comes to an end.

Greenspan said "The odds are we flatten out,",  referring to the current equity market.

"That flattening out will put some sort of dull face on 2010."

Greenspan expects the economy to grow at a 3 -4 percent annual pace in the next sixth months before slowing down. As a result, unemployment will not likely decline much from last month's 9.7 percent rate.  That being said, Greenspan doesn't expect the economy to relapse into recession next year.

The U.S. Economy (The world's largest), shrank 0.7 percent from April through June, which was the best performance in more than a year, according to the Commerce Department .With the unexpected decline in business activity, which was released today (and a private report showing employers cut back more jobs than forecast), everything is indicating,  a recovery may be slow to take hold.

The Index for Standard & Poor's 500 jumped 57 percent since its low for 2009 on March 9, an rise that's had a "very positive" impact on the economy, according to Greenspan.

The stock index was down 0.2 percent to around 1,059.13, after falling as much 1.3 percent after the reports from the Institute for Supply Management in Chicago and ADP Employer Services.

We are expecting growth to be boosted in the coming months by the inventory cycle as companies bring stockpiles of goods into line with sales, (Greenspan said). The economic recovery wont prevent continued downward pressure on consumer prices, according to Greenspan.

‘Disinflationary Environment'

"We are still by any measure in a disinflationary environment," said Greenspan.

Consumer prices have fallen for the past six straight months from year-earlier levels, this is the longest stretch of declines since a 12- month drop (September 1954 -August 1955), according figures from the Labor Department.

There's a long-term risk that inflation will accelerate if the Fed neglects to rein in the stimulus it has pumped into the economy, and the central bank's $2 trillion balance sheet is "not sustainable."

Greenspan also voiced his concern that political pressure would prevent the Fed from taking actions necessary to keep consumer prices in check.