Alan Greenspan, who served as chairman of the Federal Reserve for nearly two decades, has died at age 100. He took the Fed chairmanship in July 1987, inheriting an institution that already held significant power under his predecessor, Paul Volcker.
According to a Fox News opinion piece reflecting on his legacy, Greenspan expanded the Fed's influence considerably during his time in office. He served five four-year terms and nearly doubled the Washington, D.C. staff to over 3,000 employees. He tightened the grip of the chairman's office, participated in the Swiss-based Bank for International Settlements, and approved international banking standards through the Basel accords.
One of Greenspan's most significant policy shifts was moving the Fed away from Volcker's approach of controlling the M2 money supply. Instead, Greenspan introduced data dependence and federal funds rate targeting. He was known for tracking unconventional economic indicators, including rail car loadings and tons of industrial production, to form his judgments on the appropriate interest rate. He also referenced commodity price indices, a reflection of his origins as a sound money advocate.
In 1996, Greenspan cautioned Wall Street with the phrase "irrational exuberance," a warning delivered in the middle of a decade-long economic boom that included the post-Cold War peace dividend and legislative pushes for lower tax rates. Investors listened but continued buying through the boom and into the 2000 dot-com crash.
Greenspan's thinking on asset bubbles shifted over time. By 1999, he told Congress: "Human nature has exhibited a tendency to excess through the generations with the inevitable economic hangover… It is the job of economic policymakers to mitigate the fallout when it occurs, and, hopefully, ease the transition to the next expansion."
The Fed under Greenspan became known as a fast and reliable source of emergency liquidity, a practice that came to be called the "Greenspan put." His first test came just months into his tenure, when the Dow Jones Industrial Average fell a single-day record 23 percent on October 19, 1987, known as Black Monday. The Fed moved immediately to expand bank reserves, which at that time limited the banking system's ability to make loans and support broker-dealers. The federal funds rate fell on October 20 and remained lower for several days. By the market crises of 1998 and 2000, the Fed was using multiple interest rate cuts proactively to stabilize financial markets. The period was documented in the 2000 book Maestro: Greenspan's Fed and the American Boom.
Greenspan retired from the Fed in 2006. The rate-setting approach he pioneered eventually evolved into formal inflation targeting, which the Fed adopted in 2014.
