Greenspan sees rebound after ‘pretty awful’ U.S. second quarter

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The coronavirus is having a profound effect on the U.S. economy, but it should be able to stage a strong comeback, said former Federal Reserve Chairman Alan Greenspan.

“The second quarter is pretty awful,” he said in a telephone interview with Bloomberg Television on Tuesday. “But if the issue of the virus works its way as we expect, we probably have a very strong third quarter. But my concern is the fourth quarter and beyond.”

Greenspan, who led the U.S. central bank from 1987 to 2006, cautioned that the mounting burden of an aging population on the cost of U.S. retirement benefits would crowd out investment, lower productivity and hobble the economy in the years ahead.

Former Federal Reserve Chairman Alan Greenspan
Former Federal Reserve Chairman Alan Greenspan

“I think it’s going to be a dominant force in slowing down the rate of growth,” he said.

The Fed, which began a scheduled meeting of its policy-setting committee earlier Tuesday, has slashed interest rates to nearly zero and unleashed an array of emergency lending facilities to limit the harm of the pandemic. That unprecedented action has prompted some to warn about moral hazard concerns after one of its lending facilities included limited purchases of high-yield debt, which critics say could encourage risky investment in the future.

Greenspan declined to wade into the debate directly, but appeared to play down the risk of moral hazard, saying “I agree it is an issue, but there are lots of issues we can deal with without really being concerned about.”

Bloomberg News