Just as the pundits stopped screaming about the end of the bull market in bonds, Alan Greenspan weighed in.

The former Fed chairman isn’t sure when bond prices will drop and rates will rise – “I have no time frame on the forecast,” he said – only that they will.

“The current level of interest rates is abnormally low and there’s only one direction in which they can go,” the former Fed chairman told a television interviewer last month, “and when they start they will be rather rapid.”

Sound familiar?

For the past five years, a legion of pundits labeled the 30-year (and counting) bond bull market a bubble and predicted it would burst. Greenspan typifies that line of thinking: Interest rates will spike because they haven’t risen in awhile, and when that happens, investors will flee bonds, prices will collapse and yields will soar.

Is it any wonder that municipal bond investors have ignored the soothsayers and piled into munis?

What We Learned from Greenspan's Take on Bond Rates

The numbers behind muni bond rates

Simply put, rates haven’t exploded because conditions don’t warrant it.

Wages in the United States grew an anemic 2.5% in August, the same rate as in July. Job growth dipped last month to 156,000 from 189,000 in July.

While GDP grew 3% in the second quarter of 2017, the unemployment rate in August was 4.4%, about the same level as before the Great Recession. As one report noted, the number of jobs generated by employers in July restored national unemployment to where it stood before the recession began in 2007, even after accounting for population growth in the last decade.

While much was made of the new administration’s prospects for igniting the economy, concrete achievements so far have been elusive. In fact, the economy added 25,000 fewer jobs per month during the first seven months of the new presidential administration compared with the last seven months of the previous one.

The key factor economists cite for sluggish overall growth has been weak productivity growth. Last year productivity declined .1%, the first drop in 34 years. In 2015, productivity grew a woeful 1.3%.

This year doesn’t bode well, either. Despite a bump from initial estimates, U.S. productivity grew at an annual rate of just 1.5% in the second quarter, up from .1% in the first quarter.

Unit labor costs last quarter grew .2%, down significantly from 4.8% in the first quarter.

So is the Fed ready to corral the bull?

Although the Fed is eager to raise interest rates, inflation has regularly fallen short of its target rate of 2%. From July 2016 to July 2017, it was just 1.7%.

The Fed raised rates fractionally in March and June but declined to do so in July.

Clearly, policymakers are torn. According to minutes from its July meeting, some Fed members are reticent to raise rates in a low-inflation environment while others are anxious to “normalize” rates.

Hardly the environment for a rapid rise in rates.

Just-released figures for August show inflation at 1.9%, while the consumer price index rose .4% and the core CPI, excluding gasoline and food, rose .2%. Speculation abounds that these inflationary signs, such as they are, may persist as a result of the recent storms and the Fed may fulfill its vow to continue raising short-term rates. But, longer term rates should remain well in check.

The precise moves of the Fed and quarter-by-quarter economic indicators aren’t what drive municipal bond investors, even when an eminent economist weighs in.

They don’t worry about bulls, bears or bubbles. They focus on generating a steady stream of tax-free income, the reason they buy munis in the first place.

James A. Klotz is the President of FMSbonds, Inc. Email the Author 09/15/2017