WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan said Friday there was a risk of bottlenecks in the U.S. economy resulting from fear of Year 2000 computer problems, but major catastrophes were unlikely.

At a gathering of the President's Council on Year 2000 Conversion, the Fed chairman said the chance of big disruptions to critical business infrastructure was ``negligible.''

He and other regulatory officials attending the conference gave a strong vote of confidence to U.S. financial firms and the systems upon which they rely concerning readiness for the century date change.

But Greenspan said the major challenge for policymakers was calming the worries of business and households about the millennium bug, which prevents some computers from distinguishing 2000 from 1900 because of an old programming shortcut.

PUBLIC'S RESPONSE UNKNOWN

Economists are unsure how the public response to the computer bug will affect economic activity in the booming U.S. economy. Inventory building by businesses could add to economic growth and inflation risks while a widespread technical breakdown and public panic may undermine the economy.

``If only a small percentage of businesses choose to add to their inventories as a hedge, the effect on production will be insignificant,'' Greenspan said.

``However, should a large number of companies want to hold even a few extra days of inventories, the necessary, albeit temporary, increase in production (or imports) to accommodate such stock building could be quite large. Bottlenecks could develop, and market pressure could ensue,'' he said.

Financial markets have speculated that the Fed, which has raised interest rates twice this year to ward off inflation, may put monetary policy on hold due to these uncertainties.

Greenspan did not address this subject specifically, although some of his colleagues on the central bank's policy-setting Federal Open Market Committee have sent mixed signals about the impact on interest-rate deliberations.

For example, Fed governor Roger Ferguson, who spoke to reporters on the sidelines of the Year 2000 conference, said policymakers would look at the impact of Y2K only if it affected the long-term goals of maintaining stable growth and low inflation.

``If it appears that any of these Year 2000 influences are likely to be short-lived, temporary ... then I think it is our job to look through them or to look past them,'' he said.

COULD Y2K PROBLEMS HAVE BROADER IMPACT?

On the other hand, if excess inventory building or other potential Y2K factors turn out to have a broader effect on the economy, ``then we should take that into consideration.''

By their own accounts, Fed officials have been busily doing their part to ensure the smooth functioning of the banking and monetary system.

Greenspan and other Fed officials have repeatedly said they expect automatic teller machines, electronic money transfers and bank record-keeping to function as usual before and after Jan. 1, and have advised people against pulling large amounts of cash out of the bank accounts.

But the Fed has arranged for the printing of plenty of extra currency to supply to banks should there be very strong demand. The central bank has also set up a special lending facility to help institutions that may run into Y2K-related trouble.

Greenspan noted that the U.S. public was more sanguine about the coming event, which should ease fears of major disruption, though ``we are not as yet home free.''

``If we avoid fear-induced, significant economic responses in the months ahead, the century date change will hopefully replicate the saga of the 'dog that did not bark','' he said.