Washington ? Federal Reserve Chairman Alan Greenspan warned on Wednesday that mushrooming federal budget deficits eventually could threaten the national economy, which he said had shown “impressive gains.”

Greenspan, delivering the central bank’s twice-a-year economic report card to Congress, offered a fairly upbeat assessment and expressed hope companies would step up hiring. Hiring has been painfully slow and become a political sore spot for President Bush.

Against that backdrop, Greenspan reaffirmed the Fed’s stance that it would be patient in considering possible increases in short-term interest rates, which now are at a 45-year low of 1 percent.

The comment pleased Wall Street. The Dow Jones industrials jumped 123.85 points to close at 10,737.70 — the highest level in more than 2 1/2 years.

Still, he said low interest rates “will not be compatible indefinitely” with the Fed’s primary job of fighting inflation. Some private economists believe the Fed could start nudging up rates this year.

Others predict rates will not change until 2005.

Greenspan tempered his optimism with a dose of caution about the dangers of budget deficits.

Last week, the Bush administration projected that this year’s deficit would reach a record $521 billion.

Greenspan renewed his support for Congress to reinstate budget rules that had set caps on discretionary spending and require Congress to offset any new tax cuts or spending increases so the deficit would not increase.

He said that unless the government gets its financial house in order, the situation would grow more dire with the impending retirement of 77 million baby boomers.