- The Washington Times - Tuesday, June 7, 2005


Federal Reserve Chairman Alan Greenspan said yesterday he does not have a good explanation for why long-term interest rates have been falling at a time when he and his Fed colleagues have been raising short-term rates.

Mr. Greenspan called the pronounced decline in long-term interest rates over the past year while the Fed was boosting short-term rates “clearly without recent precedent.”

Speaking by satellite to a monetary conference in China, Mr. Greenspan rejected the suggestion that U.S. rates have been held down by a massive flow of foreign investment from such countries as China.

He said a recent Fed study found that foreign purchases of U.S. Treasury notes have had only a “modest” impact on U.S. interest rates.

Mr. Greenspan’s comments marked his most extensive remarks on the conflicting movement of interest rates since he called the persistence of low long-term rates in the face of Fed credit tightening a “conundrum” in February.

The Fed has boosted a key short-term rate, the federal funds rate, eight times since last June 30, moving it up in quarter-point increments from a 46-year low of 1 percent to its current level of 3 percent.

But over that same time period, Mr. Greenspan noted, the yield on Treasury’s benchmark 10-year note has fallen from around 4.8 percent a year ago to around 4 percent. The yield on the 10-year Treasury note dipped again yesterday to 3.95 percent.

Mr. Greenspan said the continued decline in long-term interest rates has not been a development just in the United States but in many other countries around the world.

“Long-term rates have moved lower virtually everywhere,” he said, noting that in many major economies the declines have been more pronounced than in the United States.

He said access to credit has even improved for many developing nations, noting bond-sale success stories in Mexico and Colombia.

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