Stocks Surge, Slide On Greenspan Signals
Federal Reserve Chairman Alan Greenspan's worries about inflation and recession sent the stock market on a roller-coaster ride, as broad market indexes touched all-time highs before ending lower in heavy trading.</br></br>The Dow Jones Industrial Average shot up more than 28 points to 2612.67 and broader averages hit record levels after Mr. Greenspan indicated in his morning testimony that he wanted to keep the economy out of a recession. But when he reaffirmed in his afternoon testimony that the Fed is committed to fighting inflation, prices plunged. The industrial average ended the day off 8.92 at 2575.49.</br></br>The bond market, in contrast, showed little enthusiasm for the chairman's early remarks. Prices rose, but not as sharply as stock prices. As the day wore on and traders evaluated Mr. Greenspan's remarks, prices slipped, and long-term Treasury issues ended about unchanged. The dollar ended lower against other major currencies.</br></br>Analysts said Mr. Greenspan's morning testimony squared almost perfectly with investors' perceptions that the economy is headed for a "soft landing" -- slower economic growth, declining inflation and interest rates, but no recession. Stock investors and traders interpreted the comments as a switch in the Fed's focus from fighting inflation to keeping the economy out of recession. The idea that the Fed would allow short-term interest rates to fall sharply to keep the economy out of recession buoyed investors' outlook.</br></br>But in his afternoon comments, Mr. Greenspan made it clear that the Fed isn't abandoning the inflation fight. He reaffirmed that zero inflation remains the Fed's long-term goal and that current levels of inflation are worrisome. While he said interest rates will fall further, he also said the short-term goal is to bring money-supply growth up to the lower end of its target band. In recent months, money growth has been below target levels.