The Greenspan Fed, the 2000 Election, and the 2001 Recession
In the past, I’ve had a few posts on the Greenspan era Fed. I’ve noted that some of its behavior seemed somewhat, er, biased, almost as if it the money supply was contracted a bit too much around election time when Democrats held the Presidency, and loosened a bit too much (no matter what George Herbert Walker said) if a Republican was in office. In fact, I’ve noted that the recession of 2001 was partly caused by the excessive tightening of the Fed in 12 months leading up to the November elections in the face of a big decline in the stock market that occurred in March of 2000 and high oil prices.
Anyway, I’ve been (slowly) reading Greenspan’s book, The Age of Turbulence, and I have two quotes:
Indeed, to foster this adjustment process, the Fed had tightened interest rates in a series of steps from July 1999 to June 2000. We were hoping we might achieve another soft landing. (p. 207)
The Fed’s response to all this uncertainty was to maintain our program of aggressively lowering-short term interest rates. This extended a series of seven cuts we’d already made in early 2001 to mitigate the impact of the dot-com bust and the general stock market decline. (p. 228)
Can you provide an interpretation of events and these two quotes that is inconsistent with things I’ve noted in the past, and repeated in the first paragraph but doesn’t require us to assume that the Fed could completely overlook a stock market crash for three months, if not about year? And if you do, don’t do like Uncle Alan – keep your dates straight; September 11, 2001 occurred in, well, September of 2001, not “early 2001.