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Alan Greenspan, the former head of the Federal Reserve, warned on Thursday that even as the global economic outlook brightens, economists should beware of a “false sense of recovery”.
The 90-year old said before The Economic Club of New York that there are some signs that the economy has emerged from a long period of “stagnation” that has persisted since the end of the 2008 recession. However, it is difficult to judge whether it is a durable recovery or merely a shift into “stagflation”, he said.
Mr Greenspan’s cautious tone contrasts with the enthusiasm of investors, who have sent equities around the globe to record peaks amid expectations that growth will pick up and inflation will return to healthier levels.
Stagflation, or higher inflation with weak growth, would represent a substantial setback for policymakers since it is difficult to quell inflation without putting downward pressure on economic growth.
Mr Greenspan also weighed in on the populist wave that has rolled across the globe, from Europe to the US.
“The vitality of our democratic institutions has been impaired,” he said. “Populism is not an economic philosophy but but a cry of pain for some leader to arise and ease that pain”.
Mr Greenspan started his tenure as Fed chair in 1987, having been appointed by then-president Ronald Reagan to replace Paul Volcker. He served until 2006.
While the economist is widely respected, he has also faced criticism for allowing asset bubbles to build in the lead-up to the dot-com bust and the 2008 financial crisis.