Alan Greenspan made the comments in an interview with the Meet the Press programme on NBC.
He stated that the economic recovery of the country is currently on hold, which he described as resembling a âquasi-recessionâ.
The banking figure, who served in the post of Fed chairman until 2006, claimed that if house prices drop, then a double-dip recession is possible.
However, he highlighted that economic recovery has come to large businesses and banks in the US.
âIf the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here,â Mr Greenspan explained.
Official figures revealed that the annual rate of economic growth fell to 2.4 per cent during the second quarter of 2010.
The economy was reported to be growing at a rate of 3.7 per cent in the first quarter of the year.
Meanwhile, Ben Bernanke, the current Fed chairman, has said that the US economy currently faces an âunusual uncertaintyâ.
By Jim Ottewill