Alan Greenspan: Mild U.S. Recession Likely
Former Federal Reserve Chairman Alan Greenspan believes a US recession is the “most likely outcome” of the Fed’s aggressive rate hike regime meant to curb inflation but he does not see darker clouds on the horizon, Nicole Goodkind reported for CNN Business.
Photo Insert: Greenspan doubts the Fed will loosen interest rates soon because “inflation could flare up again and we would be back at square one,” he said.
His views are particularly important. Not only did Greenspan serve five terms as Fed chair under four different presidents between 1987 and 2006, but he was the last chair to successfully navigate a soft landing, in 1994.
In the 12 months that followed February 1994 Greenspan nearly doubled interest rates to 6% and managed to keep the economy steady, avoiding recession.
Greenspan, now 96, said in a note this week that he doubts this current bout of hikes will result in a repeat performance. The last two months of data showed that prices are beginning to decelerate – good news but not good enough, he said.
“I don’t think it will warrant a Fed reversal that is substantial enough to avoid at least a mild recession,” said Greenspan, now a senior economic adviser to Advisors Capital Management, in commentary released on the company’s website Tuesday.
Greenspan doubts the Fed will loosen interest rates soon because “inflation could flare up again and we would be back at square one,” he said.
“Furthermore, this could potentially damage the Federal Reserve’s credibility as a purveyor of stable prices, especially if the action were seen to be taken merely to protect the stock market rather than in response to truly unstable financial conditions.”
He does see some good news for investors on the horizon. Markets won’t be nearly as chaotic in 2023 as they were last year, he said. “I believe 2022 would be a tough year to top with respect to market volatility,” he remarked.