Former Fed Chief Scales Back Warnings
The Philadelphia Inquirer reports that former Federal Reserve Chairman Alan Greenspan has toned down his warning from earlier this week that the U.S. economy might enter a recession this year due in large part to a sagging housing market.
“It is possible we can get a U.S. recession toward the end of this year, but I don’t think it’s probable,” Greenspan said in his speech to a Tokyo seminar organized by international brokerage CLSA.
On Monday, Greenspan said a recession was possible, though difficult to predict in terms of timing - a comment blamed in part for the global financial market decline Tuesday.
A plunge in Chinese share prices that day and weaker-than-expected U.S. durable-goods orders for January also were seen as contributing to the world market slump.
Speaking via satellite to investors at CLSA’s Japan Forum, Greenspan yesterday appeared to want to hedge his bets on his prediction about the U.S. economy.
“Things look reasonably good in the short run for the U.S. and the world,” he said. “But we can’t just assume that this extraordinary period of recovery can extend indefinitely.”
As for the housing market and what it means for home mortgage loan demand in the foreseeable future? The former Fed chief believes brighter days are around the bend. However, that may take time.
Greenspan said yesterday that the United States has “gone through the major part of adjustment” in housing prices and “the worst is over,” although the housing market is expected to remain weak.
He said the weak U.S. housing market has had only a limited effect on consumer spending because they have been encouraged by the fall in gasoline prices since last summer.
U.S. energy prices, however, have started to rise again in recent weeks.
In addition to his remarks about U.S. housing patterns (which home loan activity is tied closely to), Greenspan reiterated his point that it is in China’s interest to allow the yuan’s exchange rate to be set by the market. But he said a decision to allow the market to set the yuan’s exchange rate is up to China.
SOURCE: Philadelphia Inquirer