Tags: Greenspan | financial | market | Fed

Greenspan: Financial Market 'Turmoil' Inevitable as Fed Withdraws Stimulus

By    |   Wednesday, 29 October 2014 02:04 PM

There will be no free lunch for financial markets as the Federal Reserve moves away from its monetary stimulus, says former Federal Reserve Chairman Alan Greenspan.

The Fed announced the end of quantitative easing after its policy meeting Wednesday, and economists believe the central bank will begin raising interest rates sometime after the middle of next year.

In an appearance at the Council of Foreign Relations in New York before the Fed meeting ended, Greenspan was asked if the Fed can withdraw from its easing without causing a crisis in financial markets, MarketWatch reported.  He said he doesn't like the word "crisis" but "turmoil" fits the bill.

"I don't think it is possible" to avoid turmoil in the markets, Greenspan warned.

Inflation is "dead in the water," because demand is "dead in the water," he maintained.

He noted that quantitative easing has failed to boost demand in the economy, as banks are sitting on their capital. "It hasn't been a success in the demand side," Greenspan argued.

"They just let it sit. Unless or until that happens [banks start using their reserves], you don't galvanize economic activity," he added.

"When that starts, all things can happen — and not all of them are good."

The Fed has an inflation target of 2 percent, and the personal consumption expenditures price index, its favored gauge of inflation, rose only 1.5 percent in the 12 months through August.

Meanwhile, Joe LaVorgna, chief U.S. economist at Deutsche Bank, says financial market participants may be losing faith in the Fed.

"The financial markets [may] not believe what the Fed says it is going to do in the future," he wrote in a commentary obtained by CNBC.

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There will be no free lunch for financial markets as the Federal Reserve moves away from its monetary stimulus, says former Federal Reserve Chairman Alan Greenspan.
Greenspan, financial, market, Fed
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2014-04-29
Wednesday, 29 October 2014 02:04 PM
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