Greenspan Says Fed Could Lose Control of Long Term Rates

Former Fed Chairman Alan Greenspan told CNBC on Friday he’s concerned about how longer-term rates would react to a short-term tightening by the Federal Reserve.

“The major concern that everyone has obviously is once you get the interest rate movement in place it takes on a life of its own,” he said in a “Squawk Box” interview.

Economists are generally expecting the Fed to start hiking short-term rates next summer, though some believe it could be sooner. Central bank policymakers meet again at the end of the month, when they’re expected to complete their latest program of bond-buying quantitative easing.

As the Fed explains in its FAQ, movements in short-term interest rates also influence long-term privately set rates like mortgages. So higher long-term rates could make borrowing to buy a home more expensive. Higher long-term rates are also viewed as a historical negative for stocks.

There’s been fierce debate over how much the Fed’s easy money policies since the 2008 financial crisis have helped the economy. Greenspan lands in the camp that believes the central bank played key role. “Without [low rates], we wouldn’t have as at least a moderately OK economy that now exists. There’s a significant plus here.”

Refusing to handicap what the Fed should do next, he did express confidence in Chair Janet Yellen. But Greenspan cautioned, “This is an unprecedented period in monetary history. We’ve never been through this. We really cannot tell how it will work out.”

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza