| Show 8F lake Tribune Sunday September The Salt 11 1988 Fed Chairman May Find It More Difficult to Satisfy Everyone in Year Ahead ' By George L Perry Special to the Los Angeles Times It is about a year since Alan Greenspan took over as chairman of the Federal Reserve Board from Paul Volcker What grade does he deserve for his first year and what does that record tell us to expect from monetary policy in the future? Greenspan was tested by the stock market crash early in his tenure He responded to the crash by providing immediate liquidity to the financial system and subsequently letting interest rates fall to cushion the economy against possible economic weakness in the aftermath of the market crash On both counts Greenspan deserves good marks By spring recession fears had receded The stock market crash proved to have less effect on business and consumer spending than many had feared and the low level of the dollar kept our exports booming Together these foreign and domestic demands led to strong gains in gross national product industrial production and employment in the first half of this year ln part because of that strong expansion which has reduced unemployment rates and raised industrial-capacit- y utilization inflation has replaced recession as the main worry of some analysts For its part the Fed has tightened its policy during inthis period bringing short-terterest rates above their levels of last summer Because it is a presidential election year and all the present mem bers of the Fed’s board of governors have been appointed by President Reagan it was thought that they might bend policy so as to help the Republicans in November An impartial verdict has to be ‘‘not guilty” The policy variations just discussed followed the traditional pattern of “leaning against the wind” — lowering interest rates when the risk of a weakening economy emerged as it did last fall and raising them when the economic expansion looked exceptionally strong and inflation risks increased as they have since then Greenspan’s Fed has not moved interest rates as far in either direction as some critics would have wanted But the critics have thus far been proven wrong The expansion is healthy and inflation has not been reignited Even with hindsight it would be hard to fault the Fed’s performance The next 12 months may bring harder choices for Greenspan and his colleagues It now appears that GNP growth in the year’s third quarter will be at least as fast as it was in the first two quarters Although some current indicators point to slower expansion later in the year the evidence is not convincing If the expansion does not slow the Fed will raise interest rates further leaning wind If harder against a inflation finally begins to its mandate to raise rates will be even stronger There will be reasonable differences of opinion about how soon and inflation to the exclusion of all other goals and raise rates sharply and soon Others would emphasize economic expansion and wait before tightening policy any further on the grounds that inflation is only an uncertain forecast not a present reality- The Greenspan Fed will place a high priority on inflation fighting and will be inclined to raise rates sooner rather than later However judging from its performance thus far it will move gradually testing whether it has done enough before doing more There are good reasons for adopting a gradualist approach including that both forecasting the economy and gauging the impact of any interest rate increase on that forecast cannot be done with great precision Apart from such business cycle uncertainty the Fed is aware that higher interest rates have important side effects most of which are bad One problem could appear from the dollar’s exchange rate which is sensitive to interest rates here and Alan Greenspan High Marks in 1st Year how severely the Fed should tighten its policy Some would worry about would worsen the problems of banks and thrifts with questionable debts on their books and would raise bankcorpo- ruptcies among rations that have greatly increased their indebtedness in recent years The best response to those emerging conditions is beyond the reach of the Fed alone If the next president acts promptly to reduce the budget deficit we could hope to head off a renewed inflation without resort interest rates With decisive! t budget action rates could even can a expect only great optimist abroad The rally in the dollar that was pursued by policymakers earlier this year may prove to be too much of a good thing There has already been concerted intervention by central banks to keep the dollar from rising further against European currencies but so far it is hard to judge if it has been sufficient Higher US interest rates would make a continued rise in the dollar more likely And too strong a dollar now could lead to a bigger dollar decline down the road creating an instability that the United States would prefer to avoid A major problem with higher rates is their effect on debt burdens and the stability of financial institutions Under President Reagan interest expense has been the fastest-growinitem in the federal budget and higher interest rates would add to the already excessive budget deficit Even more important higher rates fall-Bu- that After a first year in which he got general applause as well as good marks Alan Greenspan may find it harder to satisfy everyone in the year ahead even if he and his Fed colleagues perform as sensibly as they have up to now g Soorgt L Pony Is senior toffow at tho hookings Institution tosearch organization in SURGOYNE COMPUTERS INC 10 mHz Computer Package times faster than std PCXT 22 DELUXE POWEB PACKAGE still-stron- g t Cablet Complete System Including Printer fur “GO-For-- U” 10 mhz XT with Keylock reset button 22 Times Faster than original XT GoFax 24 Hours A Day CourierDelivery (801)375-640- 1 We Are Complete Mastercard e Visa 7 Days A Week Errand Service (801)377-542- drives Monochrome Monitor FAX 8 Turbo switch 512K Ram Dual TEAC Floppy SERVICE FAX PUBLIC & Hercules type fraphics 1988 Cellular On Keyboard MS-DO- S ClockCalendar Serial port TESTING 2 printer ports Game port 144 CPS graphics PEOPLE WHO SATURDAY MONDAY-FRIDA- JMMT 10-- 2 Quality Computer Products Sines 1973 f ONE Some OfThe Best Things At American Towers AreNowFree TWO ESSS OSS BOSS E Free Homeowner’s Fees For One Year! 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