Greenspan sees key Fed rate at 10% by 2030

The US Federal Reserve may have to double its benchmark interest rate to at least 10% by 2030 to contain inflation sparking a political showdown that could challenge its independence, former chairman Alan Greenspan said.

A report on the website of Bloomberg said Greenspan wrote in his book, The Age of Turbulence: Adventures in a New World, that slowing productivity and rising wages abroad will probably cause US consumer prices to climb in the next quarter century. His outlook includes a reversal of many of the trends that aided the success of his own tenure at the Fed.

There are already some signs that political scrutiny is rising. Democrats, including Barney Frank of Massachusetts who heads the House Financial Services Committee, called last week for a "meaningful" cut in interest rates, the report said.

"Federal Reserve independence is not set in stone," wrote Greenspan, 81, who led the Fed for 18 years until January 2006. "The dysfunctional state of American politics does not give me great confidence in the short run and there may be a return of populist, anti-Fed rhetoric," he wrote in the book that is scheduled for publication on September 17.

"To keep inflation under 2%, the Fed, given my scenario, would have to constrain monetary expansion so drastically that it could temporarily drive up interest rates into the double-digit range not seen since the days of Paul Volcker," Greenspan wrote.