Fed was right not to prick stocks bubble: Greenspan

US Federal Reserve Chairman Alan Greenspan said on Saturday that policymakers have been proven correct in their decision not to try to prick a 1990s stock-market bubble that subsequently broke on its own.
"There appears to be enough evidence, at least tentatively, to conclude that our strategy of addressing the bubble's consequences rather than the bubble itself has been successful," Greenspan told the annual meeting of the American Economic Association in San Diego, California.
Greenspan cited the "exceptionally" mild nature of the eight-month 2001 recession despite a series of shocks to the economy that included plunging stock prices, the September 11 attacks, corporate scandals and wars in Afghanistan and Iraq.
In defending the Fed's tactics, Greenspan said if the Fed had stepped in to curb stock prices by raising rates, it might have done damage to the entire economy in the process. Stock prices collapsed in early 2000, wiping out trillions of dollars of investors' wealth.
Now in his 17th year as chief of the US central bank, Greenspan stressed that sound policymaking requires judgement and can be helped, but not fully guided, through simple rules.
He said the US economy's resilience and ability to quickly adapt had also increased its ability to weather adversity.
"Much of the ability of the US economy to absorb these sequences of shocks resulted from notably improved structural flexibility," Greenspan said in a relatively academic address.
"But highly aggressive monetary ease was doubtless also a significant contributor to stability."
He said the idea that the Fed could have brought the 1990s stock bubble to a gentle decline by ratcheting interest rates up - as some critics have suggested it should have done - "is almost surely an illusion."
In a question-and-answer period later, Greenspan said policymakers could have halted the rise in stock prices by hiking interest rates until it happened, "but it would bring the whole economy down with it."
The Fed chief made no comment about current US economic conditions and offered no hint about how soon US central bank policymakers might move interest rates up from 45-year lows in the face of mounting evidence of a broad-based pickup in US economic activity.