Greenspan Era At The Fed Comes To A Close

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Fed Chairman Alan Greenspan i

Alan Greenspan, seen here testifying before the Senate Judiciary Committee in 1998, is the second-longest serving Fed chairman in history. Richard Ellis/Getty Images hide caption

itoggle caption Richard Ellis/Getty Images
Fed Chairman Alan Greenspan

Alan Greenspan, seen here testifying before the Senate Judiciary Committee in 1998, is the second-longest serving Fed chairman in history.

Richard Ellis/Getty Images

After more than 18 years at the helm of the nation's economy, Alan Greenspan steps down next Tuesday. As chairman of the Federal Reserve, Greenspan presided over the longest economic expansion in U.S. history.

The Next Fed Chief

The Greenspan Economy

Economic tables i

Interest rates, inflation and economic growth during Greenspan's tenure at the Fed (enlargement shows 1987-2005). Sources: Federal Reserve Bank of New York, Bureau of Labor Statistics, Bureau of Economic Analysis Melody Kokoszka, NPR hide caption

itoggle caption Melody Kokoszka, NPR
Economic tables

Interest rates, inflation and economic growth during Greenspan's tenure at the Fed (enlargement shows 1987-2005). Sources: Federal Reserve Bank of New York, Bureau of Labor Statistics, Bureau of Economic Analysis

Melody Kokoszka, NPR

He also successfully navigated several financial storms including the stock market crash of 1987. His record has earned him a reputation as one of the best central bankers ever.

Greenspan's steady hand on the tiller through boom times and crisis has inspired fans, from presidents to investors, to dub him "the maestro," "the oracle," "a legend." Given his celebrity status, it's difficult to remember that back in the mid-1990s, Greenspan was weathering criticism from some quarters, for holding interest rates too high.

In fact Greenspan's failure to reduce interest rates more quickly during the recession of the early 1990s contributed to a slow recovery going into the 1992 election year. That may have cost the first President Bush a second term.

But Greenspan apparently learned from that error and was much more deft at managing interest rates after that.

Overall, he compiled an economic record unmatched by any previous central banker, says economist Allan Meltzer of Carnegie Mellon University. "The two longest periods of peacetime expansion in the history of the United States, punctuated by two very mild recessions — that's quite an achievement," Meltzer says.

The first expansion began under Greenspan's predecessor Paul Volcker and Greenspan is handing off a third long expansion to his replacement, Ben Bernanke, a former Fed governor and current presidential economic adviser. In addition, under Greenspan unemployment reached its lowest levels in 30 years, and inflation declined.

Greenspan has his critics, too. The editors of The Economist magazine, for instance, argue he gets too much credit to for keeping inflation low. They say globalization was the most important force pushing inflation down, both in the United States and around the world.

Greenspan's critics also argue he should have pricked the stock market bubble of the late 1990s. In a famous speech in December 1996, he pondered whether and how a central bank should respond to such events. "How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" he asked.

Despite his apparent concern, Greenspan didn't take any direct action, and the stock bubble continued to grow for 3 1/2 years. Then it burst on its own, costing investors trillions of dollars.

Greenspan was also criticized for not doing something to prevent the rapid run-up in housing prices in some parts of the country.

Through it all however, Greenspan remained popular. His steady handling of the 1987 stock market crash, the Asian financial turmoil, and the economic fall-out of the Sept. 11 attacks cemented the public's confidence in him.

Alan Greenspan Timeline

March 6, 1926: Alan Greenspan is born in New York City.

1948: Greenspan graduates with a bachelor's degree in economics (summa cum laude) from New York University. (He earns a master's in 1950 and a Ph.D. in 1977, also from NYU.)

1954-1974: Serves as chairman and president of Townsend-Greenspan & Co. Inc., an economic consulting firm in New York City. He returns to the posts in 1977-87.

1974: President Ford names Greenspan chairman of the President's Council of Economic Advisers.

1975: Greenspan is the principle architect behind a $2.3-billion short-term federal loan designed to keep New York City from declaring municipal bankruptcy.

June 2, 1987: President Reagan nominates Greenspan to replace departing Fed Chairman Paul Volcker. Following the announcement, the dollar drops against foreign currencies and the Dow falls 22 points.

Aug. 11, 1987: Greenspan takes office as Fed chairman.

Sept. 4, 1987: The Fed raises the discount rate 0.5 percentage point, a move seen as an effort to continue the inflation-fighting policies of his predecessor, Paul Volcker.

Oct. 19, 1987 (Black Monday): The Dow drops 508 points and 22% — only 69 days into Greenspan's tenure.

Oct. 20, 1987: Greenspan signals the Fed's commitment to keep financial institutions afloat following the crash, pledging "to serve as a source of liquidity to support the economic and financial system." Following the crash, the Fed injects roughly $6 billion dollars a day into the economy

Aug. 2, 1990: Iraq invades Kuwait, sending global oil prices sharply higher and sparking a recession which would end in March 1991.

July 10, 1991: President George H.W. Bush nominates Greenspan to a second term as Fed chairman.

Feb. 4, 1994: The Fed, for the first time, publicly announces an interest-rate change, raising the federal funds rate a quarter of a percent. The announcement is one of several steps Greenspan would take to increase transparency at the Fed.

Feb. 22, 1996: President Clinton nominates Greenspan for a third term as Fed chairman.

Dec. 5, 1996: Greenspan, while at a reception in his honor, suggests that investors might be suffering from "irrational exuberance." By questioning the value of the stock market, Greenspan sends ripples through financial markets around the world.

Sept. 29, 1998: The Fed cuts interest rates by 0.25 percentage points, a move repeated again on Oct. 15 and Nov. 17 to stave off the financial crisis created by collapsing currencies in Russia and South East Asia and the failure of hedge fund LTCM.

Jan. 4, 2000: Clinton nominates Greenspan to a fourth term as chairman.

Jan. 14, 2000: The Dow closes at an all-time high of 11,722.98. The NASDAQ follows March 10, closing at 5048.62, while the S&P 500 peaks at 1527.46 on March 24.

March 2001: The U.S. economy falls into recession, ending the longest expansion on record at 120 months.

2001: Responding to the recession and the blow of the Sept. 11 attacks, the Fed, in a series of steps, lowers the key federal funds rate to a 40-year low 1.75 percent during the 2001 calendar year. Greenspan is credited with pulling the economy quickly out of recession. The Fed continues to cut rates, reaching 1.25 percent in November 2002 and 1 percent in June 2003.

May 18, 2004: President Bush nominates Greenspan for a fifth term as Fed chairman.

June 30, 2004: The Fed beings raising interest rates, the first of a series of increases.

Oct. 24, 2005: President Bush nominates White House economic adviser and former Fed Gov. Ben Bernanke to succeed Greenspan.

Timeline compiled by Benjamin Brudevold Newman.



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