Economist Alan Greenspan said today the odds are "better than 50-50" that interest rates have peaked and that short-term money rates could fall as low as 11 percent some time this year.
"We seem to have turned the corner at barely the last minute," Greenspan said of a very gradual but fairly steady decline in some rates over the past four weeks. One closely watched short-term rate, the prime rate charged by banks to large corporate customers, topped 20 percent before leveling off.
Greenspan told a convention of Washington-area bankers and business leaders that the outlook was especially "ominous" a month ago because the financial markets were looking beyond President Reagan's current budget cuts to built-in increases in federal spending during the late 1980s.
Thus, the investment community -- as portrayed by credit and stock market activity -- appeared to voice no confidence in the administration's program, even after Congress went along with the White House in approving budget cuts "far beyond what anyone contemplated" after last November's election.
The markets said "not enough," and the savings and loan business in particular was in a position where it would not be able to survive beyond 1982 at the level interest rates had reached, said the president of Townsend-Greenspan & Co., a New York economic consulting firm.
Many analysts in Washington saw Reagan's subsequent announcement of plans to cut Social Security benefits as a political mistake that provided Democrats with a rare unifying issue, but Greenspan said today that the Social Security announcement convinced Wall Street that a serious attempt to deal with future government spending would be undertaken and that this broke the back of investors' inflationary expectations.
Greenspan also emphasized in his address to the D.C. Bankers Association that the savings and loan industry still will have a difficult time fighting for survival in the coming months.