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Wednesday, 3 January, 2001, 19:11 GMT
Alan Greenspan: market mover
Every word of Alan Greenspan's testimony is scrutinised
Alan Greenspan, the chairman of the Federal Reserve Bank, is the man most feared by financial markets.

A mere word from Mr Greenspan can cause the stock market and the dollar to rise and fall.

His decisions on US interest rates are crucial to maintaining the health of the US and the world economy.

He is also famous for his ability to keep the markets and the politicians guessing.

He once famously said: "If I seem unduly clear to you, you must have misunderstood what I said."

But his often cryptic testimony to Congress, which he must make at least twice a year under the Humphrey-Hawkins legislation, is seen as the most important assessment of the US economic situation.

To his supporters, Mr Greenspan has played a crucial role in keeping the US economy on an even keel, delivering seven years of economic growth and urging fiscal restraint on both Congress and the president.

He is widely credited, along with Treasury Secretary Robert Rubin, at turning Bill Clinton into a fiscal conservative after he arrived in Washington.

But to his critics, he is the spoilsport at the party, describing the stock market as exhibiting an "irrational exuberance" as it continued to rise in the last few years.

Crucial role

Officially, Mr Greenspan is just one of 12 members on the Federal Open Market Committee (FOMC) that meets every six weeks to set short-term US interest rates.

Wall Street listens closely to the US central banker
But it is his voice that sets the tone of the discussion and his inflation-fighting credentials that sway their decision.

He has been in charge of the US central bank, the Federal Reserve, since July 1987.

In that time he has stood firm against the twin evils, as he sees it, of high budget deficits and high inflation.

It was partly through his influence that the US Congress and the president reached a deal to cut the Federal deficit in 1995.

In the past, Mr Greenspan has not hesitated to raise interest rates when he thought the US economy was overheating.

Even in the past year he has often said he believed inflationary pressures in the US economy were strong, as the economy boomed and unemployment fell to unprecedented lows.

Mr Greenspan's role was particularly crucial in 1998 during the Asian and Russian financial crisis, which threatened to undermine the world financial system.

He moved swiftly in the autumn of 1998 to cut interest rates, even taking action between official meetings of the Federal Reserve by telephone.

The three interest rate cuts between September and November, which were copied by central banks across the globe, are widely credited with reassuring financial markets and preventing the world from sliding into a recession.

Companies and consumers were able to borrow more cheaply, and lower interest rates eased the debt burden of Asian borrowers.

In the last year, however, Mr Greenspan has returned to his concerns about US domestic inflation, and took back all the interest rate cuts he had made. But his rate increases did little to dampen the enthusiasm on the stock market.

Personal Background

Alan Greenspan grew up in Brooklyn, the son of a stockbroker. He started life as a tenor sax player with the Henry Jerome Band.

But his interest in the markets later led him to study economics at NYU and Columbia Universities in New York.

He also became a fan of the conservative writer and philosopher Ayn Rand, who believed that selfishness was the best principle on which to run society.

After running his own consultancy firm, he became the director of policy research for Richard Nixon's presidential campaign in 1968.

In 1974 he was appointed Chairman of the Council of Economic Advisors, effectively the chief economic advisor to the president.

After Mr Nixon's Watergate resignation, he served under President Ford during the period when high oil prices and galloping inflation savaged the US economy.

After returning to the private sector, he was asked by President Reagan to head a bi-partisan committee to look at the solvency of social security, the US old-age pension, whose future was being eroded by inflation.

In l987 he succeeded Paul Volker as head of the Federal Reserve, after a period in which the bank had held interest rates very high to prevent the budget deficit fuelling inflation.

Within six months, he was presiding over the biggest stock market crash in Wall Street's history.

His flexibility in cutting interest rates temporarily in October l987 is credited with preventing the crash from turning into a depression.

Bi-partisan appointment

Mr Greenspan's reappointment for a another four year term by Mr Clinton in 2000 was a sign of a bi-partisan consensus on US economic policy which recognised the prime importance of fighting inflation.

Mr Greenspan, who is 73, married his long-term companion, NBC television reporter Andrea Mitchell, last year.

Her elegant tastes compensate for his plainer style and he moved into her townhouse in the Washington suburbs.

Mr Greenspan's attention to detail is legendary. He says he often studies obscure economic reports while reclining in his bath at home.

Mr Greenspan is now presiding over the longest economic boom in US history.

If he can manage to avoid a painful economic crash, his place in history will be assured.

Terror's impact

Signs of a slowdown

Rate cuts


Key players

See also:

22 Jul 98 | Business
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