Greenspan portrayed his change of heart as a move to counteract a credit crunch resulting from overcautious banks–not because of a weakening economy. “It’s an offsetting action, not a response to economic effects,” he told a congressional committee. The Fed’s action helped lower the federal funds rate–what banks charge each other on overnight loans–to 8 percent from 8.25 percent. But the reduction will tend to lower interest rates in general and eventually filter down to consumers in the form of lower mortgages and auto loans.
Economists still found plenty to criticize. Some called the move too little, too late to stimulate the economy. Others attacked Greenspan for “caving in” to pressure. Greenspan’s middle course was bound to provoke such reaction, but at least he picked up a few new friends on Wall Street.
