Fed Chairman Walks Tightrope Greenspan Brushes Criticism Aside, Sticks With Economic Policies

Depending on who’s talking, Federal Reserve Chairman Alan Greenspan is an unparalleled economic guru or a heartless ogre.

To Rep. Maxine Waters, the liberal Democrat from California, he’s the latter. She leans into her microphone and tells Greenspan in unambiguous terms that he’s “brought great harm to our economy” by raising short-term interest rates, tightening the job market and sticking consumers with higher borrowing costs.

“Well, congresswoman,” Greenspan replies, “I trust the purpose of our action was to help, not hinder, the economy. I also trust that in retrospect that will be materially demonstrated.”

“How long will it take?” Waters demands to know.

“Adequate time,” Greenspan says softly, drawing a frown from Waters and snickers from the rest of the House Banking Committee in a scene typical of the Fed chief’s appearances on Capitol Hill this past winter and spring.

With talk of recession once again echoing in boardrooms and on Wall Street, Greenspan finds himself in the crosshairs of public opinion.

Typically, he refuses to be a stationary target.

Arguably the world’s most powerful and elusive nonelected public official, Greenspan has developed his own code language - dubbed Greenspeak by journalists and economic analysts.

Take the address he delivered Tuesday night to Economic Club of New York, for example.

Typically, the Fed chief was difficult to read. But the markets understood him to say Fed policy-makers may counter the economic downturn by lowering short-term rates as early as their next meeting, July 5 and 6.

“For the Federal Reserve, it is time … to gauge whether policy is still appropriately positioned to foster sustained economic growth,” Greenspan said.

Others are convinced the economy is sliding, and the Fed should take action fast.

Declines in housing starts, retail sales and industrial production, among other signs of economic softness, support this position.

Greenspan critics argue that the inflation-fighting Fed erred in raising short-term interest rates seven times in the 12-month period ended in February.

“Those rate hikes were a mistake” that has forced people to work more hours for less money and has pushed the economy toward recession, declares Rep. Henry Gonzalez of Texas, the ranking Democrat on the House Banking Committee and one of Greenspan’s harshest critics.

The stalling economy is prompting a swelling chorus of voices in Congress and on Wall Street - as well as White House Chief of Staff Leon Panetta - in support of a reduction in interest rates to prevent a full-blown recession.

House Democratic leader Richard Gephardt of Missouri wants action promptly. “The Federal Reserve, dominated by Republicans, is out of touch iith reality,” he huffs.

Greenspan may not move at the pace Democrats would like, but it’s unlikely he will just sit back and watch the economy fall apart.

His term as Fed chairman ends next March, and a deep recession would be an ignominious ending.

Despite the current slowdown, and plenty of second-guessing, the economy has flourished over the past few years.

Inflation and unemployment are down. Productivity is up. So are corporate profits and the stock market. Long-term interest rates are at their lowest levels in 25 years.

“I think (Greenspan) may go down as the premier chairman of the Fed,” says House Banking Committee Chairman Jim Leach (R-Iowa).

Greenspan admirers consider the Fed chairman a wizard whose decisions have produced a sound economy to the benefit of all.

“The hallmark of Greenspan’s Fed has been to hold down inflation,” says Stephen Roach, chief economist with Morgan Stanley in New York.

“If he hadn’t (raised interest rates), the economy would be growing too rapidly, inflation would be a full percentage point higher, and the markets would be much weaker,” Roach contends.

While Greenspan has lots of admirers, he’s accustomed to condemnation. A sign on his desk reads: “The buck starts here.”

A rare interview in 1991 with the Los Angeles Times offered insight into his personality.

“I think you can deal with people in one of two ways, either by force or persuasion,” he said. “If you can’t deal with them with persuasion, you’re not as effective. I don’t enjoy confrontation. I can do it, if necessary. I can be as hard as anybody I know, but I don’t like it.”