Greenspan on Inflation, Loud and Clear
Hunched over a microphone at a congressional hearing or relaxed in a leather easy chair in his office at the Federal Reserve Board, Chairman Alan Greenspan can be annoyingly obscure when he wants to beÛÓwhich is most of the time.</br></br>To keep markets guessing about Fed policy (speculators could profit if they knew for sure whether the Fed was raising or lowering interest rates), Greenspan normally keeps to generalities for Congress. And he has no on-the-record quotes for journalists.</br></br>The rule for reporters still holds. But in recent days, GreenspanÛÓjarred by a 7.2 percent annual inflation rate in JanuaryÛÓhas abandoned the coy approach for the public. The message that the Fed fears rising prices more than recession has been conveyed with the force of a slam dunk in basketball.</br></br>In so doing, Greenspan has broken with President Bush, and has pulled along five of the six other Republican governors of the central bank. The seventh, Martha Seger, dissented from the Fed's decision to raise the discount rate. SheÛªs fearfulÛÓlike the Bush teamÛÓthat the Fed will win the war against inflation but lose the fight against recession.</br></br>He loft the Fed few options as it saw key price indexes rising. If there were better prospects for reducing the fiscal deficit, a sounder case could be made for the softer monetary policy advocated by Bush and Seger.