ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, February 26, 1997 TAG: 9702260042
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: NEW YORK
TYPE: ANALYSIS
SOURCE: JOHN CUNNIFF ASSOCIATED PRESS
THE FEDERAL RESERVE chairman dictates monetary policy as much by subtle suggestions as overt actions, turning investors into interpreters.
Good heavens - it's that time again. The time when Alan Greenspan delivers to Congress his opinions on the state of the economy. Mark it on your calendar: today and Thursday.
One reason you should be interested is that, as Federal Reserve chairman, Greenspan is the country's most powerful monetary official, a man whose views can frighten bankers and terrify investors - or reassure them.
This is because, with just a nudge, the monetary lever can move lending rates, stock market prices, consumer confidence and the budget outlook. Archimedes sought a lever to move the world. Greenspan has it.
Before his addresses, investors seek to divine what he will say, and the daring among them act on their assumptions. After he speaks, they spend weeks analyzing and seeking to determine what he said.
So what will he say?
That the economy continues to grow within its limitations and that inflation remains in check?
Or will he, through some sleight of language, intentional or not, indicate that his economic microscope found an obscure leading indicator that gave hint of future inflation?
Judging from pre-address analyses, Greenspan is likely to deliver good news, which, in this instance, means inflation remains under control. In turn, this may be interpreted as no need to raise interest rates.
But even when he delivers outwardly good news, Greenspan has a tendency to hide a warning that the status quo cannot be preserved forever and that nothing should be taken for granted.
The message is seldom clearly stated, because his intention is simply to plant the notion rather than issue a warning. He has become expert at it, running monetary policy as much by subtle suggestions as overt actions.
In doing so, however, he generates responses on Wall Street and in the business community about what he ``really'' meant and how you, the investor or saver or consumer or producer, can benefit from these analyses.
Sometimes, these responses can be classified as utterly neurotic, based on nuances of language or interpretations of body language that were never meant to deliver a message - even the hint of one.
Rarely does the chairman speak any more clearly than other oracles, but every now and then a phrase escapes that has profound consequences, such as his Dec. 5 pondering about ``irrational exuberance'' in the marketplace.
That drove the market down sharply. In fact, it upset the stock market so badly that it plunged, and market analysts interpreted it to mean that higher interest rates were actively under consideration.
That effect, however, wore off, and the market rose again and has continued to rise so that it is now more than 7 percent higher than it was back in early December. If Greenspan meant it on Dec. 5, what does he think about it now?
So, while chances are high that the chairman won't say anything about imminent action of any sort, nobody but Greenspan knows. And even he cannot be sure an unintended message might drop from his lips.
You might say whatever reaction occurs may be a result more of the hopes and fears of those edgy listeners than in what the chairman says.
LENGTH: Medium: 66 linesby CNB