Did Fed Hit the Brakes Too Hard, Too Late?; Greenspan Defends Policy Against a Chorus of Criticism
Federal Reserve officials are no strangers to criticism. They've heard all the barbed complaints about how the central bank takes away the punch bowl just as the party gets going, and thousands of home builders once sent then-chairman Paul A. Volcker short pieces of lumber to protest the impact of high interest rates on their industry.</br></br>In more recent months, as the economy has stalled and the stock market has tumbled, letters have poured in to the Fed from individuals complaining bitterly that the central bank's actions over the past two years have ruined their retirements by driving down share prices. And even though the Fed has aggressively cut interest rates since the beginning of the year, many economists, politicians and business executives are complaining that it waited too long to begin lowering rates and that they are still too high.</br></br>Until parts of the stock market began to head south a year ago, Chairman Alan Greenspan and other Fed officials were being hailed as geniuses. The economic expansion that began in early 1991 had become the longest in American history, and in an unusual twist, non- inflationary growth had accelerated as the expansion aged. The growth of productivity -- the amount of goods and services produced for each hour worked -- appeared to have shifted into a higher gear, raising U.S. living standards in the process.</br></br>And the nation's unemployment rate was down to nearly 4 percent, a rate previously believed possible only in a world of increasing inflation. And that low rate meant that many Americans with fewer skills and low incomes were able to find jobs where none had been available before.</br></br>The major stock indexes began slipping, and the nation's economic growth fell suddenly and sharply late last year to a 1 percent annual rate. It apparently hasn't done much better since.