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Kudos for Greenspan As Fed Does Nothing

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Federal Reserve policymakers did nothing last Wednesday. Interest rates remained unchanged. And Alan Greenspan won more praise for his performance as Fed chairman.

"He is looking like a genius right now," says David Wyss, an economist at DRI/McGraw-Hill, a Lexington, Mass., consulting firm. Bond traders, Mr. Wyss himself, and many other Fed watchers had been clamoring this summer for a rise in interest rates, fearing that too robust an economy would revive inflation.

The quiet-spoken Mr. Greenspan predicted the economy would slow and inflation remain moderate. He was right.

The Fed's monetary policy - crucial to interest rates, inflation levels, and the health of the economy - is decided by a committee of the seven Fed governors (including the chairman) and the 12 presidents of regional Fed banks (five voting at any one time). But the chairman, sitting at the head of the table, generally has more influence on policy than his one vote would suggest.

Allan Meltzer, a longtime Fed critic who is writing a history of the central bank, ranks Greenspan as "the best" of any Fed chairman - far above others "in terms of handling problems that arise."

"He brings to the job top knowledge of, and expertise in the tracking and projecting of, the economy," says David Munro of High Frequency Economics, a consulting group in Valhalla, N.Y.

"One can nitpick around the edges," says Paul Kasriel, an economist at the Northern Trust Company, Chicago. "But overall, I would give him an A. He has added to the Fed's credibility."

All the kudos comes at a time when the economic expansion, the third longest in postwar history, has been "disappointingly slow," as Mr. Wyss and colleague Roger Brinner write. The expansion, which started 5-1/2 years ago, has been at "half speed" relative to two previous long expansions in the 1960s and 1980s. Real gross domestic product, the nation's output of goods and services, is up 14.6 percent above its level in the first quarter of 1991, the trough in this business cycle.

In contrast, real GDP rose 25.3 percent during the first 22 quarters of the 1980s recovery (from a deep recession) and 36.7 percent in the same timespan of the 1960s economic upturn.

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