Greenspan Says U.S. Recession May Be Deeper Than Last
Former Federal Reserve Chairman Alan Greenspan said a possible recession in the U.S. this year may be deeper than the last two contractions.
“The existing financial problems are deeper than we've had for a while, so I wouldn't be surprised if this recession is deeper than the last two shallow recessions,'' Greenspan said at a conference today in Abu Dhabi, United Arab Emirates.
Over the past year, Greenspan has gone from seeing a one- in-three chance of a recession to an estimate of “50 percent or better.'' Wall Street firms including Merrill Lynch & Co. and Goldman Sachs Group Inc. are forecasting the first contraction since 2001. The last two downturns averaged about eight months.
“We're at stall speed,'' the 81-year-old former Fed chief said today. “When you're at stall speed, anything that goes wrong takes you lower.''
The proportion of economists who forecast a U.S. recession this year more than doubled over the last three months, to 45 percent, according to a survey released today by the National Association for Business Economics.
The Fed will lower its benchmark interest rate between banks to 2.5 percent this year, from the current 3 percent, according to the NABE survey median.
Growth in emerging economies will continue to outstrip that of the U.S., while their currencies will also appreciate against the dollar, Greenspan said. He also urged nations in the Persian Gulf to move toward letting markets set exchange rates payday loans free credit report.com.
Dollar's Primacy
“We have enough liquidity in the world to support more than one major currency,'' he also said. “I doubt the dollar will fall from number one.''
Referring to Persian Gulf countries, he said “letting the currency float is probably the best way to stop the flow of foreign exchange into the economy and cause inflation.''
He said it was “worrying'' that China and other nations are using price controls on food and energy products to limit inflation.
Greenspan also said home prices in the U.S. will “continue to fall'' and the housing slump is having a “broader effect'' on consumer spending. He added that oil prices, which surpassed a record $100 last week, will keep rising.
Fed Chairman Ben S. Bernanke, Greenspan's successor, earlier this month warned that policy will have to be “calibrated'' over the next year to meet both inflation and growth objectives.
Bernanke is scheduled to testify before Congress this week on the central bank's semiannual monetary policy report to Congress.
Greenspan left the Fed in January 2006 after almost two decades at the helm. He has returned to his role as a private economic forecaster, speaking at conferences and to groups of bankers and investors, while consulting for clients such as Deutsche Bank AG.