Fed Chief Defends Raising Interest Rates

With unusual clarity and force, Alan Greenspan dismissed criticism of the Federal Reserve’s interest-rate increase in March and paved the way Thursday for the possibility of even higher rates to come.

“It would have been folly not to take this small prudent step,” the central bank chairman said in an after-dinner speech.

As usual, Greenspan refrained from saying explicitly what action Fed policy-makers would take when they meet next on May 20. But the remarkably strong tone of his remarks suggested they might add to the quarter-point rate increase engineered March 25.

“For the Federal Reserve to remain inactive against a possible buildup of insidious inflationary pressures would be to sanction a threat to the job security and standards of living of too many Americans,” he told New York University’s Stern School of Business.