Alan Greenspan says US recession is likely

New York

Former Federal Reserve Chairman Alan Greenspan believes a US recession is the “most likely outcome” of the Fed’s aggressive rate hike regime to curb inflation. He joins a growing chorus of economists predicting an impending economic recession.

His views are especially important. Not only did Greenspan serve five terms as Fed chair between 1987 and 2006 under four different presidents, but he was the last to successfully navigate a soft landing in 1994. In the 12 months following February 1994, Greenspan almost doubled interest rates to 6%. % and managed to keep the economy stable while avoiding recession.

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Greenspan, now 96, said in a note this week that he doubts the performance will repeat as a result of this current bout of raises.

He said data over the past two months showed prices were starting to decline – good news but not good enough. “I don’t think this will guarantee a Fed reversal long enough to avoid at least a mild recession,” Greenspan, a senior economic advisor at Advisors Capital Management, said in comments posted on the company’s website Tuesday.

The Fed raised interest rates seven times last year, the rate at which banks charge each other for overnight borrowing, to a range of 4.25%-4.5%, the highest since 2007. Fed officials still expect rates to rise another percentage point, according to projections released during their December monetary policy meeting.

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“Wages rise and, by extension, employment,” Greenspan said, “still need to be more benign for a pullback in inflation.” “So we may have a brief period of calm on the inflation front, but I think it will be too late.” The unemployment rate remained near a historic low of 3.7% in November. New employment figures are scheduled to be released on Friday morning.

Greenspan doubts the Fed will ease interest rates anytime soon because “inflation could rise again and we’ll be back in the first place,” he said. “Moreover, it could potentially damage the Federal Reserve’s credibility as a purveyor of stable prices, especially if the action is seen simply to protect the stock market rather than as a response to truly volatile financial conditions.”

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He sees some good news for investors. He added that the markets in 2023 will not be nearly as chaotic as they were in previous years. “I do believe that 2022 will be a difficult year to top with respect to market volatility,” he commented.


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