- The Washington Times - Friday, January 24, 2003

WASHINGTON, Jan. 24 (UPI) — As early as 1997, even as growth was high, unemployment was low and inflation appeared dormant, there were battles within the Federal Reserve Board on whether the economy and stocks were overheating, newly released Fed documents show.

But it wasn't until June 1999 that the Fed began raising rates, infuriating investors who blamed Chairman Alan Greenspan for the ensuing stock-market collapse.

Transcripts of the Federal Open Market Committee are regularly released after five years.

The Fed documents, reported on by Friday's editions of the Washington Post, show that some Fed staff felt the bank "should use its interest rate powers to cool what many policy-makers felt was an overheated economy and a speculative stock market."

But Greenspan repeatedly won a majority of Fed policy-makers over, bolstering his arguments "with forecasts about the economy and stock market, prepared by his staff at the Fed, which failed to predict the strength and duration of the 1990s boom."

The Post said: "At a decisive meeting in May 1997, Fed governor Laurence H. Meyer and nearly all of the Fed's regional bank presidents demanded that the Fed get 'ahead of the curve' with the first of what they expected would be a series of rate hikes to slow the economy.

"Cathy E. Minehan, president of the Boston Fed, warned that without some signal that the Fed was prepared to curtail speculation in stocks and real estate there would soon be a dangerous investment bubble."

However, the Post said, "But Greenspan, who at the previous meeting had all but promised the 'inflation hawks' he could support a rate hike, surprised them by presenting a controversial new theory: that a dramatic rise in productivity stemming from technological advances would allow the economy to grow much faster than in the past without triggering inflation."

It said that all through 1997, Greenspan didn't hide his feeling that stock prices were unjustifiably high. By August of that year, it said, he was "fretting out loud that his 'new economy' theory had become so widely accepted that the public might turn against the Fed if and when it finally decided to put the brakes on the economy."

The Fed began hiking rates in June, 1999. Transcripts of that meeting won't be released until at least January 2005.





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