Federal Reserve Chairman &to=http:// english.pravda.ru/main/18/89/358/10504_exchange.html ' target=_blank>Alan Greenspan said it was hard to say why long-term interest rates were so low, but that even if they moved below short rates it need not signal a weakening economy.
Speaking to a bankers' conference in Beijing via satellite from Washington, Greenspan said "new forces" in &to=http:// english.pravda.ru/comp/2003/02/26/43751.html ' target=_blank>international markets were likely behind the unusually low level of long-term rates around the globe.
"Their nature and their behavior is not something we are going to fully understand, if ever; certainly except in retrospect," he said.
Although the Fed has raised overnight borrowing costs by 2 percentage points since June 2004, taking the benchmark federal funds rate to 3 percent, long-term rates have fallen -- confounding policymakers, informs Reuters.
Since last June, the US central bank has raised short-term interest rates from 1 per cent to 3 per cent but the yield on the 10-year Treasury note has declined by about 80 basis points to just under 4 per cent.
Emerging market bond spreads have fallen to low levels, and the spread of investment grade corporate bonds and junk bonds over Treasury bonds has declined.
"The economic and financial world is changing in ways that we still do not fully comprehend," Mr Greenspan said. Some analysts have suggested the market signal meant the &to=http:// english.pravda.ru/main/18/88/350/14576_Dollar.html ' target=_blank>Federal Reserve would soon end its interest rate tightening cycle. Mr Greenspan acknowledged that "policymakers need to be able to rely more on the markets' self-adjusting prices and less on officials' uncertain forecasting capabilities".
Mr Greenspan said: "One prominent hypothesis is that the markets are signalling economic weakness. This is certainly a credible notion."