What If Washington's Tool Kit Won't Work? The dangers facing Greenspan & Co. As they try To fix what's wrong.(Business)(Brief Article)

Publication: Newsweek

Publication Date: 26-MAR-01

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We will soon learn whether the economy operates by the textbook. As the stock market falters, Washington is making the standard antirecessionary moves. In 2001 the Federal Reserve has already reduced short-term interest rates by 1 percentage point. This week it's expected to cut at least a further half point, to 5 percent. Meanwhile, Congress is pondering a tax cut to increase people's purchasing power. By the textbook, these steps ought to pep up the economy. But the textbook could be wrong.

Remember, we've never been here before. This longest U.S. economic expansion--beginning in early 1991--has been exceptional in many ways. Stock ownership soared: from 32 percent of families in 1989 to 49 percent in 1998, says the Fed. Stock wealth quintupled: from $3.2 trillion at year-end 1989 to $17.1 trillion on March 24, 2000, according to Wilshire Associates. And business investment...

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