Former Federal Reserve Chairman Alan Greenspan He believes a recession in the US is the “most likely outcome” of the Fed’s aggressive rate-raising regime aimed at curbing inflation. He joins a growing group of economists who predict an imminent economic downturn.
His views are especially important. Not only did Greenspan serve five terms as chairman of the Federal Reserve under four different presidents between 1987 and 2006, but he was the last president to successfully navigate Soft landingin 1994. In the twelve months after February 1994, Greenspan nearly doubled interest rates to 6% and managed to keep the economy stable, avoiding a recession.
Greenspan, now 96, said in a note this week that he doubts this current wave of hikes will lead to a repeat performance.
Data for the last two months showed that prices were starting to slow down — good news but not good enough, he said. “I don’t think that will guarantee a reversal by the Fed that is large enough to avoid at least a mild recession,” Greenspan, now a senior economic advisor at Advisors Capital Management, said in a comment posted on the firm’s website on Tuesday.
Fed High interest rates seven times in the past year, increasing the rate banks charge each other to borrow overnight to a range of 4.25%-4.5%, the highest level since 2007. Fed officials still expect to raise interest rates by another percentage point, according to For forecasts issued during the month of December. monetary policy meeting.
Increases in wages, and thus employment, “still need to be further softened for the downturn in inflation to be more than fleeting,” Greenspan said. “So we may have a brief period of calm on the inflation front, but I think it will be too little too soon.” Unemployment rates remain near historic lows, holding at 3.7% in November. New employment data is due Friday morning.
Greenspan doubts the Fed will ease interest rates soon because “inflation could break out again and we’ll be back to square one,” he said. “Moreover, this could damage the Fed’s credibility as a provider of stable rates, especially if the action is taken simply to protect the stock market rather than in response to truly unstable financial conditions.”
He sees some good news for investors on the horizon. He said markets will not be as chaotic in 2023 as they were last year. “I think 2022 is going to be a tough year at the top in terms of market volatility,” he noted.
“Infuriatingly humble alcohol fanatic. Unapologetic beer practitioner. Analyst.”