Greenspan paints grim picture of US economy
Federal Reserve former chairman Alan Greenspan said the US has slipped into an “awfully pale recession” and may continue to languish for the rest of the year.
By Bloomberg |
WASHINGTON: Federal Reserve former chairman Alan Greenspan said the US has slipped into an ���awfully pale recession��� and may continue to languish for the rest of the year.
���We are clearly receding��� with economic growth now at about 0%, he said in an interview with Bloomberg News. Greenspan, who now consults for clients including Deutsche Bank, also said it was too soon to declare the end to the credit crisis stemming from the collapse in the subprime mortgage market.
The Fed former chief���s assessment echoes figures in the past month that show declines in manufacturing and housing industries, though fewer job losses than economists forecast. Greenspan���s successor, Ben S Bernanke, and his colleagues indicated last week they are ready for a pause in interest-rate cuts after seven reductions since September.
Greenspan spoke the day before the Federal Open Market Committee���s April 30 statement, where it dropped a previous reference to ���downside��� risks to growth and noted ���uncertainty��� about the outlook for inflation. While declining to comment on monetary policy, Greenspan said the economy is returning to a more inflation-prone period. Import prices are rising, as are wages overseas, adding to pressures already caused by soaring costs of food, energy and other commodities. Bernanke is scheduled to speak on mortgage markets at 8:30 p.m. in New York on Monday.
Greenspan, 82, portrayed the economy as being caught in a ���tug-of-war��� between cash-rich businesses on the one hand and money-losing financial institutions on the other. ���This is a very unusual situation,��� he said. ���Neither side is obviously winning the battle.���
The economy grew at a 0.6% annual rate over the past two quarters, the slowest pace since the 2001 recession. Greenspan said continued stagnation for the rest of this year may be the best the US can hope for and might even be the most likely outcome. ���That's certainly the most benevolent scenario,��� he said. ���It's not all that far from being the most probable.���
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���We're in a recession,��� he said. ���But this is an awfully pale recession at the moment. The declines in employment have not been as big as you'd expect to see.��� The government reported on May 2 that US payrolls fell by 20,000 in April, compared to the median estimate of a 75,000 decline in a Bloomberg survey. The unemployment rate unexpectedly dropped to 5% from 5.1% in March. The Fed former chief said a recovery won't begin until home prices show signs of stabilising, relieving pressure on financial firms to write off mortgage-related losses.
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