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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: pater tenebrarum who wrote (78856)	3/31/2000 11:15:00 AM
From: John Koligman	Read Replies (1) \| Respond to of 132070

Since Greenspan is a popular topic here, thought I'd post this from today's WSJ. Highlights are: 1) Greenspan claims he has no desire to 'pop the market' 2) Greenspan claims studies show raising margin rates has no 'predictable' effect on stock pricing... Regards, John Greenspan Denies Charges the Fed Is Moving to Deflate the Markets By JOSEPH REBELLO Dow Jones Newswires WASHINGTON -- Federal Reserve Chairman Alan Greenspan denied that the U.S. central bank is attempting to talk down the country's highflying stock markets, saying the Fed is simply worried that the country's rapid economic growth may stoke inflation. Greenspan Is Criticized on Capitol Hill for His Determination to Rein in Stocks (Feb. 24) Greenspan Signals Fed Will Continue to Raise Interest Rates Amid Growth (Feb. 18) "The Federal Reserve is not 'jawboning' the stock market or targeting stock prices," Mr. Greenspan said in a letter Wednesday to Rep. Jim Leach (R., Iowa), chairman of the House Banking Committee. "Rather the Federal Reserve is concerned about imbalances between aggregate demand and supply and their implications for inflation and thus sustainability of the expansion." Mr. Greenspan, who was responding in writing to questions lawmakers posed during his semiannual Humphrey-Hawkins testimony to Congress last month, said the Fed thinks the "sharp increase in equity valuation appears to have been an important factor behind an apparently developing imbalance" in the U.S. economy. But he suggested the Fed isn't inclined to raise margin requirements to curb the rise in stock prices. "With regard to margin requirements, studies suggest that changes in such requirements have no appreciable and predictable effect on stock prices," Mr. Greenspan said. "Nonetheless, the Federal Reserve recognizes that considerable risks can be involved in the purchase of equity on margin, especially in volatile markets, and believes that lenders and borrowers need to assess carefully the risks they are assuming through the use of margin." Mr. Greenspan also said changes in Fed policy in the short run don't have a "significant effect" on stock prices. "Our operating procedures ... do tend to smooth short-run fluctuations in short-term rates," he said. "However, the risks of investing in equities come primarily from uncertainty about future earnings and about the longer-term interest rates at which those future earnings should be discounted, and not mainly from the possibility that the short-run cost of financing stock positions could increase," he said. "Consequently, even if our operating procedures were associated with somewhat larger movements in short-term rates, I doubt that investors' perceptions of equity risks would be much affected and thus that equity prices would be significantly influenced," Mr. Greenspan said. Write to Joseph Rebello at joseph.rebello@dowjones.com