The shock of the new

7 June 2005 By Edward Hadas

The Fed chief ruled out a coming recession, pension fund buying, demographics and foreign accumulation. That leaves only "new forces". But one of them is not so hard to find. The Fed s zero real rate policy has induced a quite rational exuberance among bond buyers.

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Alan Greenspan said that "new forces" were likely to lie behind the persistently low level of longterm interest rates around the world. Speaking by video link, the president of the Federal Reserve Board told the International Monetary Conference in Beijing: "Their nature and their behaviour is not something we are going to fully understand, if ever; certainly except in retrospect."

Greenspan also said that a "massive influx of hedge fund capital" had already picked the "lowhanging fruit of readily available profits". As a result, "many wealthy fund managers and investors could become less wealthy".

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