Greenspan Leaves Investors Guessing on Interest Rate Moves

Federal Reserve Chairman Alan Greenspan said Friday that he wanted to keep the world guessing on the timing of U.S. interest rate moves, leaving investors hungry for clues as to the Fed’s next decision.

The Fed chief dashed hopes of a quick rate cut when he said Wednesday that the Fed preferred to move at its scheduled meetings--a comment already-dejected investors took as a signal that the central bank would not change rates before its next meeting March 20.

But Greenspan said Friday that he had intended to keep the waters murky.

“I hope I was sufficiently ambiguous not to have indicated timing of when or if we would move,” Greenspan told members of the House Budget Committee after testifying on tax cuts. “I hope I was adept at what we term ‘Fedspeak’ on that issue.”

For weeks, analysts have been pondering whether the Fed will cut rates between its regular meetings, as it did in January in response to numerous reports of a quickly deteriorating economy.

The Fed took markets by surprise when it lowered rates Jan. 3 by half a percentage point, a move followed by another half-point cut at its scheduled meeting in late January.

Most analysts believe another half-point rate cut is in the cards when the Fed meets March 20, which would bring the key federal funds rate to 5%.

Greenspan--who has said U.S. economic growth has just about stalled--did not offer any comments Friday to dissuade investors from thinking the Fed will act aggressively, noting that inflation was “very well contained” and calling recent reports of rising prices a “blip” not supported by other data.

Greenspan rebuffed criticism that the Fed had responded too slowly to signs that the economy was abruptly downshifting, saying a premature move could have led to deeper economic malaise.

In testimony that focused on fiscal policy, Greenspan repeated his support for tax cuts but warned lawmakers against abandoning fiscal discipline, which could tip the country back into deficits.

His testimony largely mirrored remarks he delivered to a Senate panel in late January that ruffled political feathers. That testimony irked Democrats who viewed it as an abrupt about-face from Greenspan’s prior stance that debt reduction should be the key fiscal policy goal--a shift they saw weakening their arguments against President Bush’s $1.6-trillion tax cut proposal.

Greenspan called the potential for completely paying off the federal debt “a major achievement,” but he warned that the chances of a return to budget deficits as a result of poor fiscal policy are “not negligible.”