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.”
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