Tuesday, May 27, 2008
It's been at least a few weeks since the former Fed chairman weighed in on the likelihood of a recession in the U.S. This report from Reuters confirms what many former Fed watchers have suspected - there's still better than a 50-50 chance.
"I still believe there is a greater than 50 percent probability of recession," Greenspan told the Financial Times in an interview published on the newspaper's website.Too sharp of an increase in the savings rate (after tax income minus consumption) was cited as the main risk to his current economic forecast.
"(But) that probability has receded a little and I think the probability of a severe recession has come down markedly," said Greenspan.
He said it was "too soon to tell" whether the worst of the financial crisis was over as this would depend on what happened to house prices.
The Financial Times said Greenspan estimated house prices would fall by another 10 percent from their February levels, for a total peak-to-trough decline of roughly 25 percent.
Translation: if people start living within their means, we're in real trouble.