Greenspan vs. Bush

Rate cut: Federal Reserve chairman acts to ease fears of recession -- and need for a tax cut.

January 08, 2001

EVEN BEFORE taking office, President-elect George W. Bush has been busy campaigning for his massive, $1.6 trillion tax cut plan.

The Bush team has put out distinctly gloomy views of the country's economic slowdown, ominously talking about a pending recession. "Bold action" is needed, the president-elect said. Read that to mean "tax cuts."

But Mr. Bush failed to persuade Alan Greenspan to join the chorus of doomsayers. The Federal Reserve chairman sees a slowing economy that still lacks key recessionary indicators.

Last week's interest-rate cut underscores Mr. Greenspan's ability to react rapidly. He sent a message that monetary policy set by the Fed, not the president's fiscal policy, is the best vehicle for managing a volatile economy.

The impact of a tax cut can take a year to be felt; the Fed's rate cuts have an effect immediately.

Mr. Bush and Mr. Greenspan disagree on the need for a huge tax cut. The Fed chairman fears this could re-ignite inflation and turn surplus to deficit. He prefers using the surplus to pay down the national debt.

The latest economic numbers are hardly alarming. New home sales dropped again in November, but 2000 should be the second-best year ever. Job-creation slowed in December, but 2000 still finished with the economy adding 1.9 million positions.

Manufacturers and retailers are showing stress, though. The auto industry is laying off workers and shutting plants temporarily. Demand isn't what it was just six months ago.

One economist warns of a "speed bump" in the economy. That could mean the Fed will loosen lending rates frequently to ensure a "soft landing."

But Mr. Greenspan refuses to panic. The president-elect would be wise to follow the savvy Fed chairman's lead.

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