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Greenspan: Politics won't alter rate policy

Published Oct. 12, 2005

Federal Reserve Board Chairman Alan Greenspan on Saturday said election-year politics would not stop the Federal Reserve Board from lowering interest rates if it thought that such action would spur economic growth.

"It would be irresponsible" to delay a needed cut in interest rates until after the election, he told executives attending the fall meeting of the Business Council, a group of top corporate officials.

Greenspan had taken the unusual step of convening a news conference to deny recent newspaper reports that the Fed was holding off interest-rate cuts because it doesn't want to get involved in politics.

Some economists had expected the Fed to lower interest rates last week after a string of poor reports on the economy, including continued high unemployment.

When the Fed failed to cut rates Monday, the Dow Jones indicator of 30 industrial stocks briefly fell 105 points before recovering. With no word on lowering interest rates, the stock market continued to have a bad week, closing Friday at its lowest level of the year, 3136.58.

Greenspan said "the incredible degree of uncertainty in the economy" makes it difficult for the Fed to keep to the narrow path between moving too slowly in cutting interest rates to help growth and moving precipitously and increasing the risk of inflation.

With the uncertain economic picture confronting the Fed, Greenspan said Fed officials would "continue to observe and evaluate the economy the way we always do."

"Above all, we at the Federal Reserve must maintain a degree of monetary flexibility," he said. "As a consequence, it is necessary that we don't rule out any specific monetary policy. That principle will continue up to the election and beyond."

Greenspan also denied reports that the Fed was delaying acting on interest rates in anticipation of changes after the election in either tax or spending policy. There had been speculation that President Bush and Democratic nominee Bill Clinton would try to stimulate the economy after the election _ Clinton by increasing spending; Bush through tax cuts.