Outlook: Greenspan should have done more

IN THE END it was all very central banker-like. First there was the caution. This was not the half to three-quarter point cut in short- term interest rates that the market thought necessary to counter the effects of the crisis in the world economy. Instead it was a miserly quarter point - admittedly the first cut in more than two-and-a-half years but a long way short of the kind of action required to put a convincing floor under US share prices. Nor was there any hint of further cuts to come, or of a parallel easing of the discount rate.

Then there was the language of the cut. This was nothing to do with wanting to ease the plight of the world economy, you understand. Rather the intention was "to cushion the effects on prospective economic growth in the US of increasing weakness in foreign economies and of less accommodative financial conditions domestically".

The difference is an important one, for what Alan Greenspan is doing is adding his voice to the already strong chorus of central bankers saying that monetary policy will be determined only by domestic considerations. What is going on here, in essence, is a "stuff the rest of the world" approach. Hans Tietmeyer, president of the Bundesbank, has already said it. And so has Wim Duisenberg, president of the European Central Bank. The markets hoped for more from Mr Greenspan.

The Federal Reserve chairman has undoubtedly moved too cautiously. Central bankers just don't seem to get it, do they? It may seem reasonable enough for Mr Greenspan to look to his own economy first and foremost, but it is not just altruism that requires steep rate cuts from the US right now. In the months ahead, rates will have to come down a lot further to head off the threat of stagnation, not just to the world economy, but to the US too.