Former Fed Chairman Alan Greenspan warns that the Federal Reserve's eventual interest rate hikes could lead to volatility in long-term interest rates.
"Remember, central banks do not and cannot control longer-term rates, which are fundamentally based on discount factors of expected earnings," he told
CNBC.
The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008. Many economists forecast the central bank will begin increasing rates around the middle of 2015.
As for long-term rates, the 10-year Treasury yield stood at 2.46 percent Friday morning.
The Fed's rate increases may have unintended consequences, Greenspan said. "Remember, this is an unprecedented period in monetary history. We have never been through this," he explained.
"We really cannot tell exactly how it will work out. The major concern that everyone has, obviously, is once you get the basic interest rate movement in place, it takes on a life of its own."
Meanwhile, Harvard economist Martin Feldstein says the Fed may act more aggressively on rates than expected.
"I would not be surprised by a continued rise in the inflation rate in 2015," he writes in an article for
Project Syndicate. "In that case, the Fed is likely to raise the federal funds rate more rapidly and to a higher year-end [2015] level than its recent statements imply."
The median forecast of Fed officials is for a 1.375 percent fed funds rate at the end of next year.
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