Alan Greenspan is no grinch. Despite six interest-rate hikes this year, the nation is spending a lot of green this holiday season, which should indicate the chairman of the Federal Reserve Board qualifies more as a Santa Claus than as a mean old goblin intent on stealing Christmas.
From the moment the Fed first raised interest rates last February as a "preemptive strike" against inflation, there have been doomsayers warning that the economy would be aborted. "As the economy comes up for air, the Fed shoves it back down," grumbled Maryland's Sen. Paul S. Sarbanes last spring. But in the long Sarbanes-Greenspan debate, the Fed chairman comes off as a clear winner -- at least so far as 1994 is concerned.
Instead of being cut short by higher interest rates, the economy has boomed as a result of vastly improved productivity rates in industry after industry. Corporate profits have jumped almost a third. Individual incomes are growing solidly for the first time in years. Housing construction continues strong despite its sensitivity to interest rates. Exports are on an upsurge and promising to break out now that global trade reform has been approved. Factory utilization is up to 83 percent, a clear sign that U.S. manufacturing is coming back. No wonder, Mr. Greenspan talks of "the best economic performance in three decades or more."
Of course, these signs of strength are the very reason the Federal Reserve continues to worry about inflation and may be impelled to raise interest rates again early next year. In its latest "beige book" report, the Fed warns that "prices of raw and intermediate materials continue to advance, with reports of some increases being passed through to final product prices." Higher costs are most prevalent in paper products, plastics, chemicals, steel and building materials. It is only a matter of time before these boosts are passed on to consumers, who during this Yuletide continue to enjoy fairly level prices.
If the Fed does notch up interest rates again, we can be sure it will encounter a new rash of Sarbanes-style warnings that it is stifling the nation's economic growth. These warnings should be discounted. On the basis of the past year's performance, Americans should put their confidence in the Fed until it is proven wrong. "The hallmark of a successful monetary policy will be an inflation rate that does not rise," Mr. Greenspan has told Congress. He is being too cautious. Successful monetary policy includes not only low inflation but steady economic growth, and in 1994 the Fed has won on both points.