The unpredictable and frequently astonishing events of the last several months have forced many people to change plans. Young entrepreneurs anticipating dot-com initial public offerings have had to shelve the blueprints for their mansions. Large companies are shying away from jittery bond markets. Consumers have postponed purchasing expensive sport-utility vehicles. And in Washington, D.C., after the most contentious Presidential election in American history, movers (and lobbyists) are busily preparing for a new Administration to take the reins of power.
These developments will also surely affect the man whose steady hand has guided the U.S. economy through unprecedented growth: Federal Reserve Board chairman Alan Greenspan.
As the new year dawns, CFOs and their colleagues in executive boardrooms are looking to the 74-year-old economist more than ever for stability and guidance. George W. Bush may formally take office on a chill January day, but Greenspan’s credibility and ability to control interest rates have effectively made or broken the last two Presidencies. “In some ways, it’s going to be a Greenspan Presidency,” says Justin Martin, author of the newly published biography Greenspan: The Man Behind Money.
Greenspan’s world is changing, however, and not just because there will be a new resident at 1600 Pennsylvania Avenue this month. Rather, as Governor Bush and Vice President Albert Gore slugged it out in their cross-country grudge match, the capital markets and the U.S. economy were downshifting. And Wall Street economists and political analysts warn that the Goldilocks economy of the late 1990s may be giving way to some economic porridge that is too cold.
If that proves to be the case, then Greenspan may start to hear something he hasn’t heard for a long, long time: criticism. “When the times turn sour, in particular if the Fed has manifestly had a role in souring them, the chairman loses a lot of popularity,” says James Galbraith, professor of public policy at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin.
Inscrutable even in the best of times, Greenspan has been even more difficult to read of late. Last October, in one of his much-followed speeches, he was positively upbeat about the U.S. economy’s ability to continue to outperform the world without producing inflation. But at the meeting of the Federal Open Market Committee on November 15, he left interest rates where they were and maintained an anti-inflation stance. Then, on December 5, Greenspan indicated the Fed might be willing to lower interest rates after all. In response, shellshocked investors hit the markets like sailors hitting bars on a shore leave, pushing the Nasdaq index up 10.47 percent — its largest single-day gain ever.
To be sure, Greenspan’s relentless jihad against inflation paved the way for the 1990s boom. And over the years, he has frequently done battle with America’s growing investing public, trying to rein in what he viewed as its “irrational exuberance.” When Greenspan joined the Fed in August 1987, his first act was to raise interest rates. (He feared that the Dow, then at about 2,600, was overheating.)