View Full Version : Bernanke: The un-Greenspan

Bradley in DC
08-23-2007, 11:45 PM

Bernanke: The un-Greenspan
The Fed may well end up slashing interest rates, but the Greenspan era of pumping up market bubbles with repeated cuts is over, predicts Fortune's Peter Eavis.

By Peter Eavis, Fortune writer
August 23 2007: 11:16 AM EDT

NEW YORK (Fortune) -- It may be the most important development to emerge from the recent market turbulence: The Federal Reserve, under Chairman Ben Bernanke, is going back to being a central bank.

Judging by its cautious and finely-calibrated responses through a very ugly August, the Fed appears keen to put the Alan Greenspan years firmly in the past and take a much more orthodox approach to monetary policy. While the Fed will probably cut interest rates as early as next month, its behavior in August strongly suggests that Bernanke will avoid using interest rates to deliberately spark big increases in lending, the high risk strategy pursued by Greenspan from 2001 to 2004.

"I think Greenspan would have cut rates already. So I do think things are beginning to look different at the Fed," says Paul Kasriel, economist at Northern Trust.

A change at the Fed would have far-reaching consequences for the U.S. economy and the stock market. Initially, a much less accommodating Fed will be perceived as a reason for bearishness. But, over the longer term, market players may well see a less dysfunctional central bank as a good thing that could begin the process of cutting borrowing levels in the U.S., something that has to happen if the American economy is not going to seize up every time interest rates rise. . .