Federal Reserve Chairman Alan Greenspan said on Friday he wanted to keep the world guessing on the timing of U.S. interest rate moves, leaving investors hungry for clues as to the Fed’s next decision.
The powerful Fed chief dashed hopes of a quick rate cut two days ago when he said the Fed preferred to move at its scheduled meetings — a comment already-dejected investors took as a signal that the central bank would not change rates before its next meeting on March 20.
But Greenspan said on Friday that he had intended to keep the waters murky.
“I hope I was sufficiently ambiguous not to have indicated timing of when or if we would we move,” Greenspan told members of the House of Representatives Budget Committee after testifying on tax cuts. “I hope I was adept at what we term ‘Fedspeak’ on that issue.”
For weeks, analysts have been speculating whether the Fed will cut rates between regular meetings, as it did in January in response to an influx of reports painting a picture of a quickly deteriorating economy.
The Fed took markets by surprise when it lowered rates on Jan. 3 by a half-percentage point, a move followed by another half point cut at its scheduled meeting in late January.
Most analysts believe yet another half-point rate cut is in the cards when the Fed meets on March 20, which would bring the key federal funds rate to 5 percent.
Greenspan — who has said U.S. economic growth has just about stalled — did not offer any comments on Friday to sway investors from thinking the Fed will act aggressively, noting that inflation was “very well-contained” and calling recent reports of rising prices a “blip” not supported by other data.
A significant inflation threat could keep the Fed from cutting interest rates. Financial markets largely shrugged off Greenspan’s latest comments in mixed trading.
Greenspan rebuffed criticism that the Fed had responded too slowly to signs that the economy was abruptly downshifting, saying a premature move could have led to a deeper economic malaise.
“Had we moved too soon we would have altered the path of adjustment and conceivably created a higher level of economic activity than we are currently seeing, inducing far greater imbalances and a far greater correction of adjustment than we are seeing at the moment,” he said.