Published On: Wed, Oct 29th, 2014

Alan Greenspan Says Fed Policy Change May Lead to Turmoil

Former Federal Reserve chairman Alan Gre

With Federal Reserve Chair Janet Yellen scheduled to deliver an announcement on Wednesday, Former Fed chairman Alan Greenspan says “easy does it” when it comes to tapering off bond buying. With a strong employment number recently, many expect moving back from Quantitative Easing, a policy enacted by former Fed chairman Ben Bernanke following the financial crisis in 2007. Since then, robust economic data has raised the question of when the Fed will cease bond buying that has been seen as necessary to stimulate, and now to prop up, the U.S. economy.

Alan Greenspan seems concerned about a radical departure from this policy, as reported by MarketWatch. He said the Fed won’t be able to exit this policy without sparking “turmoil.” Concerning inflation, Greenspan said it is “dead in the water” because demand is likewise “dead in the water.” Quantitative easing has been a success, but not on the demand side, because banks are simply parking reserves at the central bank.

He added, “They just let it sit. Unless or until that happens, you don’t galvanize economic activity. When that starts, all things start to happen. And not all of them are good.” Greenspan is worried about the “real pressure” that could come to the market as the result of raising interest rates too quickly.

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