As the Federal Reserve begins the process of raising interest rates, the FOX Business Network’s Maria Bartiromo asked former Federal Reserve Chair Alan Greenspan about the impact of Federal Reserve policy on the recovering U.S. economy.
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Greenspan pointed to concerns over the impact on long-term debt.
“There are pressures obviously emerging for long-term debt to start moving up. It’s [at] an extraordinarily low level.”
Greenspan says he is beginning to see a transition in the economy from stagnation towards stagflation.
“And as the inflationary pressures which now seem to be building, we’ve just been through a long period of stagnation, we’re moving now toward what we used to call stagflation.”
According to Greenspan, the transition may seem positive in the short term, but it is just an illusion.
“The short term outlook begins to look sort of slightly buoyant, because the inflation actually moves profitability, and you get a sense that maybe things are over. But that’s going to be a false dawn.”
Greenspan then compared it to the U.S. economy in the 1970s.
“We’ve been through this period before of stagflation, back in the 1970s, and it’s going to be very tough to get our way beyond it.”