By Alister BullJACKSON HOLE, Wyoming (Reuters) – In rare public criticism of Alan Greenspan, former U.S. Undersecretary for International Affairs John Taylor said on Saturday that ultra-low Federal Reserve interest rates had stoked the U.S. housing boom and subsequent bust.
Greenspan, who retired as chairman of the Federal Reserve in January 2006, slashed rates to an ultra-low 1.0 percent to protect the U.S. economy after the collapse of the technology bubble, the September 11, 2001, attacks and fears of deflation.
“A higher federal funds path would have avoided much of the housing boom,” Taylor said, drawing on a model he designed to simulate housing activity if the Fed had raised rates instead of aggressively easing borrowing costs.
Taylor, author of the famous Taylor Rule of central bank policy, presented his findings at an annual retreat for central bankers hosted by the Federal Reserve Bank of Kansas City in the Grand Teton mountains.
The symposium is examining the implications of the ongoing woes of the U.S. subprime mortgage market and collapse in credit which has roiled financial markets around the world.