WASHINGTON -- Federal Reserve Board Chairman Alan Greenspan, in a letter to a senator written before last week's interest rate increases, said he believed long-term rates would have gone up even if the Fed had not raised short-term rates.
In the letter dated May 13 and released by Sen. Byron Dorgan. D-N.D., Mr. Greenspan said that while the Fed had expected some increase in long-term rates in response to its actions, rates moved up far more than had been originally expected.
"Given the sharp change in market perceptions of economic conditions, longer-term rates eventually would have increased nearly the same - and perhaps even more - had the Federal Reserve done nothing so far this year," the letter said.
He conceded that the central bank cannot be absolutely certain of the results of its actions and must be prepared to "adjust policy as unexpected developments become evident."