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Greenspan Era At The Fed Comes To A Close

Alan Greenspan, seen here testifying before the Senate Judiciary Committee in 1998, is the second-longest serving Fed chairman in history.
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Alan Greenspan, seen here testifying before the Senate Judiciary Committee in 1998, is the second-longest serving Fed chairman in history.

After more than 18 years at the helm of the nation's economy, Alan Greenspan steps down next Tuesday. As chairman of the Federal Reserve, Greenspan presided over the longest economic expansion in U.S. history.

He also successfully navigated several financial storms including the stock market crash of 1987. His record has earned him a reputation as one of the best central bankers ever.

Greenspan's steady hand on the tiller through boom times and crisis has inspired fans, from presidents to investors, to dub him "the maestro," "the oracle," "a legend." Given his celebrity status, it's difficult to remember that back in the mid-1990s, Greenspan was weathering criticism from some quarters, for holding interest rates too high.

In fact Greenspan's failure to reduce interest rates more quickly during the recession of the early 1990s contributed to a slow recovery going into the 1992 election year. That may have cost the first President Bush a second term.

But Greenspan apparently learned from that error and was much more deft at managing interest rates after that.

Overall, he compiled an economic record unmatched by any previous central banker, says economist Allan Meltzer of Carnegie Mellon University. "The two longest periods of peacetime expansion in the history of the United States, punctuated by two very mild recessions — that's quite an achievement," Meltzer says.

The first expansion began under Greenspan's predecessor Paul Volcker and Greenspan is handing off a third long expansion to his replacement, Ben Bernanke, a former Fed governor and current presidential economic adviser. In addition, under Greenspan unemployment reached its lowest levels in 30 years, and inflation declined.

Greenspan has his critics, too. The editors of The Economist magazine, for instance, argue he gets too much credit to for keeping inflation low. They say globalization was the most important force pushing inflation down, both in the United States and around the world.

Greenspan's critics also argue he should have pricked the stock market bubble of the late 1990s. In a famous speech in December 1996, he pondered whether and how a central bank should respond to such events. "How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" he asked.

Despite his apparent concern, Greenspan didn't take any direct action, and the stock bubble continued to grow for 3 1/2 years. Then it burst on its own, costing investors trillions of dollars.

Greenspan was also criticized for not doing something to prevent the rapid run-up in housing prices in some parts of the country.

Through it all however, Greenspan remained popular. His steady handling of the 1987 stock market crash, the Asian financial turmoil, and the economic fall-out of the Sept. 11 attacks cemented the public's confidence in him.

Copyright 2022 NPR. To see more, visit https://www.npr.org.

John Ydstie has covered the economy, Wall Street, and the Federal Reserve at NPR for nearly three decades. Over the years, NPR has also employed Ydstie's reporting skills to cover major stories like the aftermath of Sept. 11, Hurricane Katrina, the Jack Abramoff lobbying scandal, and the implementation of the Affordable Care Act. He was a lead reporter in NPR's coverage of the global financial crisis and the Great Recession, as well as the network's coverage of President Trump's economic policies. Ydstie has also been a guest host on the NPR news programs Morning Edition, All Things Considered, and Weekend Edition. Ydstie stepped back from full-time reporting in late 2018, but plans to continue to contribute to NPR through part-time assignments and work on special projects.

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