Greenspan’s First Year Is Called a Success : Handling of October Crash Put Critics at Ease

On his first anniversary as Federal Reserve Board chairman, Alan Greenspan is reaping praise and respect from politicians and economists, confounding predictions that he would not be able to follow Paul A. Volcker’s tough act.

Greenspan, a soft-spoken bespectacled man, has steered the U.S. economy through the worst stock market debacle in its history and maintained a steady course, keeping an equal distance from inflation and recession.

The Fed’s surprise decision this week to lift the key discount rate to 6.5% confirmed Greenspan’s reputation as an inflation-fighter.

It also helped put to rest fears that his close ties to the Republican Party might influence his policy decisions in an election year and make him a less objective central banker than Volcker, a politically neutral Democrat.

Won Confidence

“The Fed has been facing charges that it was playing election year politics . . . I think this should go a long way toward allaying any concerns of that kind,” said Lyle Gramley, an economist with the Mortgage Bankers Assn. and former Fed governor.

“As far as the financial markets are concerned, he is doing a good job,” said Dana Johnson, chief money market economist with First Chicago Corp.

Greenspan, a 62-year-old native of New York City, became the 13th chairman of the Fed on Aug. 11, 1987.

Although he was a well-known and respected economist, the financial markets had doubts that anyone could adequately fill Volcker’s shoes. Volcker, who served as chairman for eight years--from 1979 to 1987, was probably the most influential chairman in the central bank’s history and his comments moved financial markets from New York to Hong Kong.

But Greenspan won the market’s confidence with his handling of the Oct. 19 stock market crash and his effort to rein in economic growth to contain inflation.

“I think he has done a truly commendable job in his first year and I am not surprised,” said Joseph Liro, an economist at S. G. Warburg Securities Inc. “I personally was disappointed when Volcker did not stay on another four years,” he added.

Learned From Mistakes

“He deserves high marks in his first year on monetary policy,” said Steven Roberts, a former Fed official now a partner with Peat Marwick Main Co.

Greenspan learned from his early mistakes, financial experts said.

Some say he moved too quickly to prove his independence from the White House. The Sept. 4 half-point increase in the discount rate, the interest the central bank charges banks for short-term loans, has been cited as one of the factors leading up to the crash six weeks later.

“He took the action because he was the new chairman who wanted to show his toughness,” said a congressional aide.

But Greenspan was praised for rapidly ensuring that credit was available to meet the liquidity needs of the financial markets and economy on Oct. 19 and 20. The central bank’s quick and reassuring moves contributed greatly in quelling the panic.