By Evelina M. Tainer, Chief Economist, Econoday
2/16/01

Fed Chairman Alan Greenspan testified on monetary policy before the Senate Banking Committee this week in his semi-annual report to Congress. Greenspan's remarks disappointed market participants because they did not imply that the Fed would reduce the federal funds rate target before the next FOMC meeting on March 20. However, Greenspan did note that economic activity remains weak and that an inventory correction is in place. Moreover, he said that the Fed has had to become more aggressive in its actions now that information flows affect consumer and business confidence more quickly, as well as impacting inventory adjustments more dramatically. This explains why the Fed lowered rates 100 basis points in the single month of January. While the chairman's comments do not suggest the Fed will reduce rates an additional 100 basis points in the next month, they do imply that policy makers are monitoring the situation closely and stand ready to reduce rates again quickly should the need arise.

Note that since 1978, Fed chairmen have provided Congress with the Fed's economic forecasts and plans for monetary growth. This law expired last year, no longer requiring the Fed to reveal its targets for monetary aggregates. Indeed, monetary aggregates have lost their luster as a policy tool, but Greenspan continues to deliver his report on monetary policy, nevertheless.