That was enough to send the markets into a tizzy. Greenspan was hinting that the nation’s central bank is closer to raising its target for a key short-term interest rate, according to the market sages. They probably are right.
The problem is that the bond buyers, and the highly leveraged credit markets, are so used to main-lining it on 46-yearlow interest rates that they can’t face the prospect of a day without sunshine.
Since April 2, when the Labor Department reported that the economy added 308,000 jobs in March, investors have begun to realize that the recovery is for real and that interest rates aren’t going to stay at 1% forever. Still, analysts say, strong April and May job reports are a precondition to any rate increase, which they are fairly confident won’t happen before the dog days of August.
But if the mere hint of a rate increase is enough to send the markets plunging, how will they react to an actual hike? Maybe not that badly, if Greenspan is clever enough to prepare them for that day far enough in advance. And if rates do rise a bit along with greater economic growth, nobody should be too surprised. Perhaps Greenspan has been sufficiently mindful not to expose himself to undue risk.