Greenspan cautions on risk of rising rates

09/27/2005

SEP. 27 2:48 P.M. ET (AP)—Federal Reserve Chairman Alan Greenspan issued a fresh warning on Tuesday that investors shouldn’t be lulled into a false sense of security, given the long stretch of low interest rates.

“History cautions that extended periods of low concern about credit risk have invariably been followed by reversal, with an attendant fall in the prices of risky assets,” Greenspan said in a speech delivered via satellite to a meeting of the National Association for Business Economics in Chicago.

Greenspan, in Tuesday’s speech, didn’t specify what risky assets he was referring to. But the Fed chief has been sounding an alarm for months—including an emphatic warning on Monday—about the perils to home owners and lenders using risky and exotic types of mortgages.

In his remarks Tuesday, Greenspan repeated worries he has expressed in the past—that a rise in interest rates may spell trouble for some investors who are counting on rates to stay low for an extended period of time.

“Such developments apparently reflect not only market dynamics but also the all-too-evident alternating and infectious bouts of human euphoria and distress and the instability they engender,” he said.