Why wasn't Greenspan so direct when supporting the Bush tax cuts?
How Precarious a Lid on Inflation?
Sunday, June 20, 2004; Page F02
Washington policymakers don't often admit that they might be wrong. Yet that has been the noteworthy message from the some of the Federal Reserve's biggest brains in recent weeks.
Fed Chairman Alan Greenspan said last week that he and his central bank colleagues believe that "inflationary pressures are not likely to be a serious concern in the period ahead." And so, they think it "very likely" that they can raise interest rates slowly "over the quarters ahead." But before investors could reach for their party hats, the chairman cautioned that "forecasts are subject to error," and if the Fed's judgment "turns out to be mistaken, we will change."
That followed the admission two weeks earlier by Donald L. Kohn, a Fed governor and 34-year veteran of the central bank system, that "there is much about the inflation process that we do not understand, and I have been surprised at the extent of the pickup in core inflation this year…Given our limited understanding of price determination, we must keep a close watch on actual inflation outcomes."
So if these two don't know exactly how inflation works, how could anybody else?
A concerted series of attacks on Saudi and Iraqi oil pipelines would play hell with the financial markets. And current interest rates don't leave Greenspan much head room.
