Greenspan's Rate-Hike Target Is Joe Little Guy

Never mind Wall Street; Alan Greenspan wants Main Street to tone it down a bit. Greenspan issued another rate hike on Tuesday, a quarter-percent rise that brings the Fed's short-term interest rates to 6 percent — a five-year high. For a change, neither the NASDAQ nor the Dow flinched; traders have expected the hike for weeks. If Greenspan's plan works, the rate hike (and the two or three additional increases expected in coming months) will have a three-faceted impact on slowing consumer spending, aaccording to a plan outlined last month in the Fed chief's Humphrey Hawkins report to Congress.

In his briefing, Greenspan warned that consumers have been given incentives to spend uncontrollably by low credit card rates, a false sense of wealth fueled by daily plus signs next to the NASDAQ's performance and the fact that foreign products have been so cheap in the wake of financial crises in Europe and Asia. The three-pronged remedy will come by discouraging spending through increased credit card rates, encouraging savings through higher interest rates, and continuing the assault on the stock markets, which could bring consumers' demand more in line with their true wealth rather than with the exuberance engendered by rising markets.

Few on Wall Street are complaining about Greenspan's tack. There is general consensus that the economy cannot sustain its current level of growth, which is at the gaudy 5 percent-plus level, and needs to be nudged back down to about 3.5 percent. There is, however, a considerable contingent on the Street that wishes Greenspan would deliver the lumps all at once. While Greenspan argues that the gradual approach will allow for a "soft landing" at a sustainable economic growth rate, this group believes that the gradual rate increases are being ignored by the public — a state of affairs that could eventually result in a mass loss of confidence when the market wakes up and sees the impending effects of the rate rises. Instead, they say, Greenspan should hike rates by one percent and shock the market to its senses in one fell swoop.