- Ex-Fed Chairman says low rates won’t last ’very much longer’
- Greenspan also forecasts that euro zone ‘will break down’
Former Federal Reserve Chairman Alan Greenspan forecast that interest rates will begin rising soon, perhaps rapidly.
“I cannot perceive that we can maintain these levels of interest rates for very much longer,” he told former Securities and Exchange Commission Chairman Arthur Levitt in a Bloomberg Radio interview to be aired this weekend and next.
“They have to start to move up and when they do they could move up and surprise us with the degree of rapidity which may occur,” Greenspan added.
The yield on the 10-year Treasury note stood at around 1.55 percent on Thursday, down from 2.27 percent at the start of the year.
Greenspan repeated his previously-voiced concern that the U.S. economy was headed toward a period of stagflation -- stagnant growth coupled with elevated inflation.
“The very early stages are becoming evident,” with unit labor costs beginning to rise and money supply growth starting to accelerate, he said.
The former Fed chief was pessimistic about the chances of the euro zone surviving in its current form.
“It will break down, as indeed it is showing signs of in many different areas,” he said.
He called the 19-nation currency region “unworkable” because it tries to meld the different cultures and attitudes towards inflation of southern Europe with the north. While a number of inflation-abhorrent countries such as Germany and Austria could form a currency zone on their own, Greenspan said it wasn’t clear what they’d gain economically from doing that.
Nobel laureate Joseph Stiglitz said in a separate interview on Thursday that the euro area should split up if it can’t undertake reforms.
“If they can’t get it together, then an amicable divorce, probably dividing into two or three different currency areas” would be preferable, Stiglitz, an economist and professor at Columbia University, said in a Bloomberg Television interview with Tom Keene and Francine Lacqua.
Levitt, who conducted the interview with Greenspan earlier this week, is a senior adviser to the Promontory Financial Group and a Bloomberg LP board member.