Alan Greenspan is worried bond prices have risen too high.
“We ought to be somewhat nervous,” the former Federal Reserve chairman said in an interview Thursday with Bloomberg Television.
The yield on 10-year Treasuries sank to a record 1.318 percent on July 6. Treasuries have rallied in 2016 as the Fed held off on raising rates after liftoff from near zero in December, while central banks in Japan and Europe maintained unprecedented stimulus. Policy makers on Wednesday left the federal funds rate at 0.25 percent to 0.5 percent while saying near-term risks to the economic outlook were dissipating.
The U.S. may be heading toward stagflation -- a slow-growth economy coupled with high inflation, Greenspan said. That condition isn’t compatible with long-term interest rates of 1 percent to 2 percent. There’s a significant amount of uncertainty and “general sluggishness" in the economy, which is tied to low productivity, he said.
“What I’m concerned about mostly is stagflation, meaning I think we’re seeing the very early signs of inflation beginning finally to pick up as the issue of deflation fades,” Greenspan, 90, said. “We’re just in a stagnation state. I don’t see the speculative aspects that usually characterize a recession.”