Fed Chairman Greenspan Will Retire Today
After almost two decades as the point man for the world’s largest economy, the iconic Alan Greenspan will retire today after the Federal Reserve Chairman administers his last board meeting.
The 79-year-old Greenspan has often been called the most powerful man in the world. He will leave behind a legacy of tame inflation, low unemployment, strong economic growth and a record budget deficit. Analysts predice that his final act as the country’s leading economic guru is to raise interest rates, as the Fed has done during each of its last 13 meetings an an attempt to curb infliation.
It is only fitting, then, that he leave on such a note. Consumers expect minimal price increases at stores or markets these days, and thanks in part to Greenspan’s track record as an “inflation hawk” they largely get what they want. At his very first meeting as chairman, he instituted a half-point interest rate hike, aimed to tighten credit and keep prices down. After just two months on the job, the stock market crashed. It was Black Monday. October 19, 1987.
Greenspan was widely blamed, but the Fed stood tall and lent freely to distressed institutions, a continuing policy that has become a hallmark of the chairman’s tenure. As the market rose, during the 1990s, so did Greenspan’s popularity. Meanwhile, inflation was down to 3.4 percent last year, despite rising energy prices, having been as high as 13 percent in 1979. Greenspan will most likely be remembered foremost as the man who kept inflation in check.
”Greenspan’s legacy is that he was able to run with it,” said Pearl Kamer, chief economist for the Long Island Association, a large regional business group. “He made sure that the genie didn’t come out of the box.”
Greenspan’s influence can also be seen in nation’s low unemployment rate of 4.9 percent. He convinced skeptical Fed colleagues that rising productivity would allow jobless rates to fall without triggering inflation — an example of how Greenspan’s approach was an art as much as a science, relying on instincts and insights. The chairman recognized that productivity was climbing much faster than the government’s official numbers showed, and acted accordingly.
Then there’s economic growth. During Greenspan’s 18 ½ years in office, the country had two recessions — following the first Gulf War in 1990-1991, and the stock market plunge in 2001. But both turned out to be mild downturns that lasted only about eight months each. There is perhaps no better indicator of his performance than this fact. In the 18 years before Greenspan took over, by contrast, the country experienced four severe downturns.
”I think he’s done a remarkable job of balancing a tenuous situation,” said John Adam Kanas, CEO of North Fork Bancorp in Melville, N.Y. “I think he will go down as probably the most effective Fed chairman that has ever held the job.”
Greenspan’s balancing act also led to controversy though. The real estate boom of the last five years is a direct result of the Fed steadily cutting interest rates until they reached historic lows — to quell inflation and keep the economy strong. As a result, mortgage rates fell and created a housing boom that some worry will regress and backfire. With the housing market unable to sustain its current growth, other facets of the economy may take a hit in 2006.
Greenspan has also taken heat for failing to rein in the high-flying stock market of the ’90s in time. Although he mused in 1996 that the stock boom was caused by what he called “irrational exuberance,” prices continued to rise. Only when the bubble burst in the early 21st Century did Greenspan move to contain the damage by lowering interest rates.
”If Greenspan had been stronger in his views, then the bubble would not have been as large and the subsequent correction not as severe,” said Mark Zandi, chief economist at Moody’s Economy.com.
Greenspan’s response is simple. Had the Fed raised interest rates earlier and higher, the country would have plunged into a severe recession. Just as his impressive feats seem to outweigh his mistakes, Greenspan’s fans outnumber his critics. The retiring chief currently holds a 72 percent approval rating, a comfortable 30 points higher than the U.S. President and Vice President.
