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...Federal Reserve Chairman Alan Greenspan--the one member with star wattage--the panel gathers eight times a year around a 27-ft. 11-in. black granite and mahogany table to issue diktats that are feverishly parsed on Wall Street and around the world. The members are the seven Fed governors, plus five of the 12 regional Federal Reserve Bank presidents at a time. (Two governors' seats are currently vacant; a Ph.D. in economics will help if you'd like to apply.) The remaining bank chiefs are nonvoting but vocal participants...
While the press tends to treat Greenspan as the sole author of interest-rate policies, insiders and Fed watchers know that is hardly the case. Greenspan, actually considered a moderate among the group's inflation hawks and doves, is clearly first among equals and exerts a considerable influence over the FOMC. But as a careful consensus builder, he is also at pains to stake out positions that the rest of the committee can live with--and thereby avoid any risk of being embarrassed by a close vote. "There is a limit to how far the chairman's influence...
What confronted this increasingly hawkish panel last week was a maverick economy that simply refuses to do what it's told. The Fed had raised rates a quarter of a percent--or 25 basis points, in the lingo--no fewer than five times since last June, with little tangible impact on either GDP growth or unemployment. Joblessness stood at just 3.9% in April, its lowest level in three decades. This persistent lack of idleness sent shivers up the spines of FOMC members, who fear that tight labor markets will lead to inflationary wage increases. To make matters worse, from...
...There is real frustration within the FOMC," says Fed watcher David Jones of the Aubrey G. Lanston investment firm. "Borrowing costs have been going up for more than a year, and yet no one seems to care. The Fed is asking 'What does it take to get the consumer's attention?'" The FOMC's answer: its first 50-basis-point increase in the federal-funds rate--the interest that banks charge one another for overnight loans--in five years, plus a stern warning that you can expect another boost when the committee meets again next month. (What should...
...Well, maybe not completely. "These are the kind of signs that the Fed is looking for, that the economy is slowing down and consumers are reining in their spending," says TIME senior economics reporter Bernard Baumohl. "But Greenspan still sees signs of inflation. The most this does is maybe limit how much he'll raise in June - probably 25 basis points - and give the markets hope that it's the last one for a while." When the markets become convinced of that, it could be the beginning of a steady climb back toward those long-ago highs. At least...