Alan Greenspan: US Economic Recession 'Likely'

The man is 96. He was the Federal Reserve chair for 19 years. Lots of people listen when he doubts the Fed.

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Greenspan is an economic adviser. Greenspan commented on the company's website as part of a year-end question and answer. He was easy to understand.

Greenspan said a recession appears to be the most likely outcome at the moment.

While the last two monthly inflation reports did show a deceleration in the rate of price increases, it does not change the fact that prices are still increasing. Official inflation numbers could remain tame in the near term due to the methodology by which they are measured.

Greenspan did not think that a Fed reversal would be enough to avoid a mild recession.

Better wages and widespread employment need to be softened further in order for inflation to be less of a problem.

He thinks it will be too little too late for a period of calm on the inflation front.

Greenspan said the Fed is unlikely to relax them for fear of inflation getting worse, which could cause a volatile economy.

If the action were seen to be taken merely to protect the stock market rather than in response to truly unstable financial conditions, this could damage the Federal Reserve's credibility.

Greenspan sounded more positive about the economy in the future. We have already been through worse.

I do not expect 2023 to be as volatile. We went from a Federal Reserve that expected inflation to be transitory to one that deemed seven consecutive rate increases over ten months necessary to tamp down inflation. That is a total increase of 4.25 percentage points in the federal funds target rate, with more expected to come. Add in the massive amount of uncertainty generated by the war in Ukraine and I believe 2022 would be a tough year to top with respect to market volatility.