The Market's Toughest Critic - and White Knight

Call him the man who speaks in billion-dollar syllables.

As chairman of the Federal Reserve, Alan Greenspan has often moved stock markets up or down with the gentlest turn of phrase.

The Fed chairman stunned the Dow Jones Industrial Average into a 83-point decline on Oct. 8 by warning that equities in coming years are unlikely to match the past three years of rocket-like returns.

He apparently hoped to reaffirm his credentials as a tough inflation fighter. Yet even the words of Mr. Greenspan - arguably the most powerful official in shaping the livelihood of Americans - can lose their sting over time. Investors shook off his warnings of "irrational exuberance" last December and drove the market still higher.

Perhaps they are waiting for him to turn words into actions. The Fed has lifted interest rates just a quarter point this year, even with growth and employment beyond levels widely believed to trigger inflation.

Some analysts believe Greenspan now subscribes to the notion of a New Era, in which technology and global competition fuel strong, inflation-free growth.

But Greenspan has, again, signaled restraint in his outlook.

"Greenspan does not want this written on his professional tombstone: 'Not as Good as Volcker,'" says Cary Leahy of High Frequency Economics in Valhalla, N.Y. Paul Volcker, Greenspan's predecessor, drove inflation from 10 percent down to 4 percent by raising interest rates.

But even while fighting inflation, Greenspan has shown flexibility.

When stocks plunged 23 percent on Oct. 19, 1987, he had been in office just three months. The Fed's overnight promise "to serve as a source of liquidity to support the economic and financial system" reassured markets. And he made good on the promise, quickly flooding the financial system with money.

He pushed inflation-adjusted short-term interest rates down to zero in 1992-93 in a successful effort to revive an economy mired in a credit crunch.