Maestro — Chapter 14

1. 1. Fed research director Mike Prell warned in 1999 that exaggerated confidence in the Fed's ability to cushion shocks could lead to greater systemic instability.
2. 2. Vice Chair Alice Rivlin warned Greenspan that he was becoming a cult figure, and that if something happened to him, the world would think something terrible had happened to the U.S. economy.
3. 3. In February 1999, Time magazine featured Greenspan, Rubin, and Summers on the cover as 'The Committee to Save the World' for preventing global economic meltdown.
4. 4. At the May 18, 1999 FOMC meeting, Greenspan proposed an asymmetric directive tilted toward a future rate increase, the first such public declaration in Fed history.
5. 5. At the June 30 FOMC meeting, the Fed raised rates by 0.25% but returned to a symmetric directive, surprising markets as less hawkish than expected.
6. 6. President Clinton questioned the rate increase, echoing liberal Democratic senators, but his advisers defended Greenspan's decision as a preemptive brake to keep the expansion going.
7. 7. In a Harvard commencement speech, Greenspan sounded more like Clinton, expressing concern that income and wealth gains had not been widely spread across households.
8. 8. Janet Yellen told Clinton that a stock market decline of 10-20% was needed to calm the economy and stabilize growth and unemployment.
9. 9. Greenspan concluded there was no predictable point of tightening that could achieve a modest stock market decline and keep it down; the 'saddle' point was practically unfindable.
10. 10. At Jackson Hole in August 1999, Greenspan's speech was so elliptical that aides interpreted it as declaring the end of 'irrational exuberance,' but he had not.