Alan Greenspan, on the other hand, has shown a brilliant understanding and mastery of the tools he has (interest rates and money supply) to manage our economy’s momentum. He’s mastered the phasing and calibrating of his interventions to keep the US economy on an even keel while growing the national wealth with only one notable exception. And that exception was his unwillingness to reign in the bubble economy of Clinton’s second term with sufficient negative momentum inputs (rate increases).
With that exception, he has shown us how to leverage small rate changes timed early enough relative to the business cycle so as to prevent catastrophic crashes.
Does anyone know the algorithms that he uses to guide his decisions?
THE FEDERAL RESERVE MOVES AGAIN
The Federal Reserve raises short-term interest rates to 1.75%:
“The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. After moderating earlier this year partly in response to the substantial rise in energy prices, output growth appears to have regained some traction, and labor market conditions have improved modestly. Despite the rise in energy prices, inflation and inflation expectations have eased in recent months.”
I have a hard time imagining a world next summer in which the Fed is sorry that it did not raise interest rates today. But I have an easy time imagining a world next summer in which the Fed is sorry that it did raise interest rates. So I'm having a hard time understanding their thinking.
Posted by DeLong