Maestro by Woodward Bob

Author:Woodward, Bob [Woodward, Bob]
Language: eng
Format: mobi, epub
Publisher: Simon & Schuster
Published: 0101-01-01T00:00:00+00:00

12

* * *

As 1997 began, Greenspan reminded himself of his maxim “If you’re not nervous, you shouldn’t be here.”

On February 26, he testified before the Senate Banking Committee and hit the stock market again. “Caution seems especially warranted with regard to the sharp rise in equity prices during the last two years,” he said. “These gains have obviously raised questions of sustainability.” Since the beginning of 1995, the Dow had jumped a staggering 80 percent.

A week later, at the House Banking Committee, the chairman attempted to deny that he was trying to “jawbone” the stock market.

“That’s not what I was intending to do,” he said. “It can’t be done.”

Greenspan was claiming impotence about the stock market while trying doggedly to influence it. He was attempting a subtle distinction. The suggestions about “irrational exuberance” and “sustainability” indicated that the stock market might be relevant to the Fed as they evaluated their monetary policy. It was a fact that the market was very, very high. He was not necessarily saying that it was too high or that the Fed would try to bring it down. If the Fed did try to bring the market down, their problems would only grow worse. Congress and others would want to know when the stock market was too low and at what point the Fed might be expected to boost stock prices. Greenspan didn’t want to get close to setting a trading range—the maximum permissible high and the maximum permissible low. It was not the Fed’s job. He didn’t think they could do it if they tried.

Nonetheless, he wanted to issue a clear warning: The stock market was unusually high, the Fed was watching vigilantly, and they had to consider the possible impact on the economy and consumer spending. It made him nervous.

• • •

At the end of March, Dr. Laurence H. Meyer had been a governor at the Fed for nine months. Appointed by Clinton the previous year, Meyer would never forget the day he came to Washington to be interviewed by President Clinton in the White House residence. They met for about 45 minutes, and the president did nearly all of the talking, trying to relax Meyer, speaking about the history of various White House rooms and his overall economic goals. If the president had asked the basic question—Do you think the economy can grow faster without inflation?—Meyer was prepared to say no, that there was a lot of loose economic talk going on that was contrary to his understanding of how the economy worked. Meyer believed that if unemployment were too low, it would spark inflation—and in his view, the economy was already in the danger zone, quite close to the NAIRU. But Clinton never asked the question, and Meyer was nominated and confirmed.

With a Ph.D. from MIT, he had founded Laurence H. Meyer and Associates, a successful economic forecasting business in St. Louis, in the early 1980s. Working with economic advisers in the Reagan, Bush and Clinton administrations, he had been known for the accuracy of his economic forecasts.

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