"New Economy" Thinking At The Fed
It's a new world out there, and the old economic models don't seem to work anymore. Nowhere is the change more apparent than at the Federal Reserve. After years of debate, Fed Chairman Alan Greenspan has convinced his fellow governors that fundamental changes in the economy--especially the shift toward low inflation--require change in monetary policy. Gone will be the old, secretive Fed, which held that the economy is inherently unstable and requires preemptive action to avoid trouble (especially inflation). In its stead is a new, more transparent central bank that works by telegraphing its concerns and intentions to the markets. By simply making known its bias toward easing or tightening, the Fed will rely on stock and bond markets to do their own economic fine-tuning. But when the financial system is really threatened, as it was last fall when Russia defaulted, the Fed will still come in with direct decisive action.
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