Greenspan Doesn’t Want To Wait

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The tinkerer-in-chief is at it again. Worried that a combination of economic factors is putting keen upward pressure on inflation, Fed chairman Alan Greenspan is expected to ask the Federal Reserve Board to raise interest rates for the first time in two years at its Open Market Committee meeting Tuesday. Even though inflation has been low so far this year, at 2.3 percent still cruising well below last year’s 3.3 percent level, Greenspan has made it unmistakeably clear that he believes it’s better to act now to counter the pressures of taut labor markets, high demand for raw materials and other consequences of continued economic growth, rather than wait for what he views as inevitable hikes in wages and prices. By raising rates a bit, the Fed would hope to slow economic growth slightly and create some slack in demand over the next several months. The tactic worked when Greenspan used it in 1994, slowing growth and containing inflation, while setting the stage for another surge of growth in 1996. While such hikes can be particularly painful for small businesses in need of capital and workers seeking jobs (or hoping for raises), Greenspan believes it is better to slow the train a bit so that it can regather strength than to wait for the chemistry of growth to sour.