How Times Have Changed: Fed Chief Off the Hot Seat

Wall Street still hangs on nearly every word he utters but, for most Washington politicians, Federal Reserve Chairman Alan Greenspan was practically the invisible man this week.

In his most important testimony of the year, delivered on separate days to both congressional banking committees, Greenspan was speaking mostly to empty chairs or lawmakers in a hurry to go someplace else. With rare exception, the questioning was desultory and deferential.

“The job is in the best possible hands,” Senate Banking Committee Chairman Donald Riegle (D-Mich.) told Greenspan Thursday.

All this stands in stark contrast to the tense, heady atmosphere that once engulfed the Fed chairmen--both Greenspan and his even more enigmatic, cigar-smoking predecessor, Paul A. Volcker--whenever they ventured onto Capitol Hill during much of the 1980s. At one point during the 1981-82 recession, for example, then-Senate GOP Leader Howard H. Baker Jr. of Tennessee complained loudly at a White House meeting, “We’ve got to get Volcker off our neck.”

But even though the job of running the nation’s central bank is just as crucial to the health of the economy as ever, most of official Washington just doesn’t seem to care.

“Perhaps it’s understandable,” says David Hale, chief economist at Kemper Financial Services in Chicago. “Unlike the early and mid-’80s, there haven’t been any major errors or wild swings in monetary policy. Greenspan’s approach is so gradualist and careful that almost nobody sees any advantage in turning the Fed into a whipping boy.”

But even though the Fed barely shows up on Washington’s radar screen these days, Greenspan still produces plenty of news for the financial markets.

On Thursday, Greenspan, in response to a question from Riegle, dismissed the significance of the sharp rise in January’s consumer price index reported the day before, stating he does not think that inflation is accelerating and may well decline slightly this year.

Just as in the past, half a dozen reporters for the wire services produced a great noisy commotion as they rushed out the door simultaneously for telephones nearby.

Greenspan’s comments were flashed in minutes to investment firms around the world and helped buoy stock prices and stabilize the bond market, which had been sent reeling only two days earlier. That was a turnaround from the reaction Tuesday, when markets plummeted in response to rising European and Japanese interest rates and Greenspan’s remarks to a House Banking subcommittee emphasizing his belief that the likelihood of recession had faded.

The instant response to every new nuance in his thinking introduced a rare bit of humor into Greenspan’s testimony.

Everything you say “tends to get exaggerated,” Riegle told Greenspan at one point.

“I’ve noticed,” the Fed chairman replied dryly.

And with little to disturb the general mood of sweetness and light, Greenspan even dared to test his comic touch again when the official stenographer went into a coughing fit in the middle of a long discourse on the evils of high inflation.

“Every time I give that speech, it has the same effect,” Greenspan cracked.

“You certainly took her breath away,” Riegle responded.

Only a moment or two generated some of the old sparks between inflation-wary central bankers and jobs-minded lawmakers--sparks that once were so commonplace when interest rates were on the rise.

Sen. Jim Sasser (D-Tenn.) at one point rushed from another hearing to complain about Greenspan’s endorsement of a resolution urging the Fed to eliminate inflation within five years. Even though the proposal sponsored by Rep. Stephen Neal (D-N.C.) has little chance of winning approval on Capitol Hill, Sasser went out of his way to condemn it with traditional populist fever.

“I see a great danger to an all-out, single-minded attack on inflation,” Sasser said. The results, he warned, “would be cataclysmic.”

And at another point, Greenspan was pressed hard enough to candidly acknowledge how worried he was last summer that the nation was slipping into a recession.

The economy felt “like a tire with a slow leak in it,” Greenspan confessed. Only in recent weeks has he seen signs that “the deterioration has stopped.”

But other potential moments of high drama fell flat.

Sen. John F. Kerry (D-Mass.) started to complain about a “credit crunch” in New England that was threatening the region’s vaunted business boom of the 1980s. In a pale echo of former House Speaker Thomas P. (Tip) O’Neill’s adage that “all politics is local,” Kerry remarked: “All economics, in many ways, is local.”

But then it turned out that all Kerry wanted was for Greenspan to deliver a pep talk urging New Englanders not to lose faith about their economic future.

That’s pretty much the way it went. Covering a wide range of topics in his two days of testimony, Greenspan also argued that the impending demands for capital to rebuild Eastern Europe is “why we saw the rise in long-term rates in the financial markets” early this year, but suggested that markets are adjusting quickly and he saw no reason interest rates should necessarily continue to climb.

In addition, he said federal officials never seriously considered rescuing Drexel Burnham Lambert, the large investment holding company that was recently forced into bankruptcy because of the collapse of the market for its junk bonds. Although Rep. Jim Leach (R-Iowa) described junk bonds as “dung-heap” bonds, Greenspan predicted that such high-interest bonds will continue to play an important, although diminished, financial role.