Greenspan Warns of Economic Danger With Rate Hikes

The former Federal Reserve chairman who warned the world about “irrational exuberance” is now offering a doom-and-gloom forecast on the U.S. economy’s well-being once interest rates shoot up.

 

In a CNBC interview, Alan Greenspan envisioned a perfect storm in the making as his central bank successors start to raise rates. "The current level of interest rates is abnormally low and there's only one direction in which they can go, and when they start they will be rather rapid," Greenspan said on the program "Squawk Box," adding rate acceleration will create more problems than solutions—although he was vague on when that would occur. "I have no time frame on the forecast. I have a chart which goes back to the 1800s and I can tell you that this particular period sticks out. But you have no way of knowing in advance when it will actually trigger … It looks stronger just before it isn't stronger."

 

Greenspan added that anyone who believed they could forecast the collapse of a potential new bubble is "in for a disastrous" experience. And as for his now-famous “irrational exuberance” remark, he admitted he was not looking for aphorism immortality when he said in a 1996 speech.

 

“I was doing it as part of a much broader speech and talking about the analysis of the markets and the like, and I wasn't trying to focus short term,” he recalled. “But the press loved that term.”

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