Reuters | Jan. 30, 2008

Probability is at least 50 percent, ex-Fed chief tells a newspaper

BERLIN - The likelihood of the U.S. economy slipping into recession is at least 50 percent, former Federal Reserve Chairman Alan Greenspan was quoted on Wednesday as saying.

“I believe the probability of a recession is at least 50 percent, but up to now there are few signs that we are already in one,” Greenspan said in an interview with weekly newspaper Die Zeit published in German. “In my opinion, it will probably happen but the facts suggest we are not there yet.”

Asked whether central bankers and financial policymakers could head off a U.S. recession, Greenspan said: “Probably not. Global economic influences today are stronger than almost anything that monetary or fiscal policy can counter them with.”

“Long-term real interest rates have significantly more influence on the core of the economy than decisions by national governments,” he added. “And central banks have increasingly lost the ability to influence these long-term rates, whereas 20 or 30 years ago they still dominated there.

“So the more important question today is in which direction long-term real interest rates are heading.”

The Fed is expected to cut interest rates again on Wednesday as part of its effort to offset the effects of a deep housing slump and credit crunch. This cut would follow a 75 basis point reduction last week to 3.5 percent and mark one of the deepest and fastest rate-cutting episodes since the early 1980s.

The U.S. economy grew at a 4.9 percent annual rate in the third quarter of 2007, but gloomy economic data this month — notably a report of weak hiring in December — suggests growth has slowed abruptly.