Tags: Federal Reserve | Alan Greenspan | fault | low rates

Fortune: Greenspan Can't Be Faulted for Keeping Rates too Low

By    |   Thursday, 27 March 2014 11:01 AM

A new study from the National Bureau of Economic Research takes former Federal Reserve Chairman Alan Greenspan off the hook from accusations that he left interest rates too low starting in 2001, according to Fortune's Christopher Matthews.

The study shows that low interest rates don't spark asset bubbles, he writes. The report assessed how stocks reacted to interest-rate hikes by the Fed going back to the 1960s. It found that after temporary dips, stocks advanced in the long run.

"This makes sense on a conceptual level, if the Federal Reserve is executing its monetary policy decisions as it should," Matthews writes.

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"After all, the Federal Reserve should be reacting to economic conditions on the ground rather than acting as the leading cause for why asset prices rise or fall."

So the Fed raises rates in reaction to strong economic growth and concern about inflation, Matthews says. At the same time, that vibrant economy would work to boost stocks.

So while stocks may drop for a bit on news of higher rates, "the overall economic conditions that led the Fed to make the decision to raise rates will continue, in the long run, to drive share prices higher," Matthews writes.

Meanwhile, New York University economist Nouriel Roubini now sees a danger of the Fed waiting too long or not waiting long enough to raise rates.

"They could start too soon and hike rates too much, and that could lead to market consequences like we saw last year when there was a surprise with the Fed tapering," Roubini told CNBC.

Then there's the possibility of waiting too long to raise rates, Roubini said. "The risk is that we are going to create another huge bubble in the economy."

Editor's Note: 250% Gains Bagged Using Secret Calendar (See Video)

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A new study from the National Bureau of Economic Research takes former Federal Reserve Chairman Alan Greenspan off the hook from accusations that he left interest rates too low starting in 2001, according to Fortune's Christopher Matthews.
Federal Reserve,Alan Greenspan,fault,low rates
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2014-01-27
Thursday, 27 March 2014 11:01 AM
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