Alan Greenspan is 96 years old. For 19 years, he served as chairman of the Federal Reserve for five terms and under 4 presidents. So when he doubts the Fed’s recent rate hikes, many individuals hearken to him.
as CNN reportsGreenspan is an economic advisor to Capital Management Advisors. On Tuesday, the corporate made the announcement Greenspan’s comments on its website year-end Q&A. He was direct.
When asked if he thinks a recession could occur essential to bring inflation down, Greenspan said, “A recession now appears to be the almost certainly consequence.”
“While the last two monthly inflation reports showed a slowdown in price growth,” Greenspan continued, “it doesn’t change the indisputable fact that prices are still rising. Indeed, official inflation figures could also be limited within the short term only by the methodology by which they’re measured, particularly housing costs.
“Nevertheless,” concluded Greenspan, “I do not think that warrants a Fed policy reversal significant enough to avoid at the very least a gentle recession.”
Based on Greenspan, higher wages and widespread employment also “have to ease even further for the drop in inflation to be greater than temporary.”
“So,” he says, “we can have a temporary period of calm on the inflation front, but I feel it’ll be too little too late.”
As for rate of interest hikes, Greenspan also identified that the Fed is unlikely to ease them for fear of worsening inflation, which could bring the volatile economy back to square one.
“Moreover,” he said, “it could potentially hurt the Federal Reserve’s credibility as a provider of price stability, especially if it was perceived that the motion was only taken to guard the stock market and never in response to actually volatile financial conditions.”
Ultimately, Greenspan sounded more optimistic in regards to the economy in 2023 than not. So far as he’s concerned, we have been through worse:
I do not expect 2023 to be so unstable. We went from a Federal Reserve that expected inflation to be temporary to 1 that thought seven consecutive rate of interest hikes in ten months were essential to suppress inflation. This represents a complete increase within the goal federal funds rate of 4.25 percentage points, with more expected. Add to that the large uncertainty brought on by the war in Ukraine and I feel 2022 will probably be a troublesome yr by way of market volatility.