Greenspan: Market volatility could frustrate central-bank bid to avert downturn

Former Fed Chairman Alan Greenspan

Former Federal Reserve Chairman Alan Greenspan said Wednesday that global central bank efforts to combat the slowing global economy may be hamstrung by volatile stock markets.

“I think they [global central banks] are going to have difficulties largely because equity prices are going to adjust more than they have over the past,” Greenspan said,

“If we get major stock market adjustments, we’re going to feel it in the economy, with a very short lag,” he said. He said economists didn’t know as much as they should about the impact of stock market drops on the economy.

Asked if he was predicting a stock-market correction, Greenspan replied: “if you are a chartist, you are probably getting a little nervous the way the markets behave.” But he said investors are sophisticated and aware of the risks.

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In the interview, Greenspan tied recent puzzling market phenomenon, like negative interest rates, to the longer life expectancy for citizens of advanced economies.

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This has created an enormous desire for savings. And it was why gold prices are rising so fast and the 30-year Treasury bond yield   has fallen below 3%, he said.

“People are looking basically for resources that they know are going to have a value 20 years from now, or 30 years from now, as they age.That is clearly a fundamental force that is driving” market moves, Greenspan said.

Stocks were higher Wednesday on the potential easing of political tension in Hong Kong. The S&P 500 index  finished up 31.51 points to 2,937, completely reversing its decline on Tuesday.

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