US Fed rate cut fires up Wall Street

The bankers, share dealers and highly-paid chief executives on Wall Street no doubt entertain hopes that the interest rate cut will bring about a new financial bonanza, such as they experienced in the heyday of Fed chairman Alan Greenspan. At that time, record low rates helped create a series of financial bubbles, while steering the economy clear of a major recession.

However the so-called "maestro" doubts the same trick can be carried off twice. In a series of interviews to launch his new book, Greenspan made clear that in his view times had changed.

"We are in a period when it is far more difficult than it was when I was chairman," he told the Financial Times. "We were not worried about inflationary resurgence but now you have to be. You have got to be a lot more careful in lowering rates in response to crises."

According to Greenspan, the pressures of disinflation in an earlier period, which tended to lower prices, were related to the integration of cheaper labour from the former Soviet bloc and China into the world market. However, once that process is completed "the rate of change goes to zero."

"In the [present] intermediate period, the disinflationary pressures I was fortunate enough to operate under are gradually disappearing."

If this is the case, then Monday's rate cut will intensify the problems confronting the US economy rather than alleviating them.

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