The Journal. - Why Alan Greenspan Is Key to Understanding Today’s Fed

Episode Date: June 24, 2026

Former Fed Chairman Alan Greenspan died this week at the age of 100. He was a towering figure in modern finance who oversaw unprecedented growth in the US economy. But Greenspan was also blamed for stripping away safeguards that might have prevented the Great Recession. WSJ’s Nick Timiraos explains that while Greenspan retired two decades ago, his ideas are providing a model for the new Fed chairman Kevin Warsh. Ryan Knutson hosts. Further Listening: - Who Is the New Fed Chair? - Barney Frank’s Legacy of Financial Reform  Sign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Alan Greenspan, the former Federal Reserve chairman, wasn't what you'd call traditionally handsome. He wore thick glasses. He was balding. And yet, he was kind of a ladies' man. Greenspan dated Barbara Walters back in the 1970s. Yes, that Barbara Walters, the famous newscaster. And she later wrote about him that he wasn't the sort of man you would notice when he walked into the room.

She would have to reintroduce him to friends because they wouldn't remember who he was. But he sort of became a player in the New York and Washington social scene. Alan Greenspan went on to become a towering figure in modern finance. He died this week at the age of 100. Alan Greenspan served as chairman of the Federal Reserve for nearly two decades. Alan Greenspan. He led the chair for five terms under four presidents. Today it's my pleasure to welcome Alan Greenspan.

During his tenure, he has inspired confidence and for good reason. The era of Chairman Greenspan will always be known as one of phenomenal economic growth. Our colleague Nick Timrose, who covers the Fed, says that even though Greenspan retired two decades ago, his ideas are gaining traction in Washington again. You know, if we were recording this episode two years ago and you asked me, well, you know, what does the example of Allen Greenspan mean for today? I would have had a much different answer than I do now, because we now have a Fed chair who is pointing exactly to what he thinks the Fed should be,

which is Alan Greenspan. Clarence, we need a really good oath delivered here. Okay, thank you. Very much. Thank you. Last month, in a ceremony at the White House, Kevin Warsh was sworn in as the new Fed chair. I do solemnly swear. I, Kevin Warsh, you solemnly swear.

Kevin Warsh said at the swearing in, he wants to restore the Fed to what it was under Alan Greenspan. Like Allen, I intended to fill the role of Chairman with energy and purpose, just the way Chairman Greenspan did, faithful to the mission and the very best traditions of the Fed. If you care about how this new Fed is going to do business, then you definitely want to spend some time getting to understand the Fed is a operated under Alan Greenspan. Welcome to The Journal, our show about money, business, and power.

I'm Ryan Knudsen. It's Wednesday, June 24th. Coming up on the show, the long shadow of Alan Greenspan. When Alan Greenspan was young, it was far from obvious that he'd go into economics. He was raised by his mother in Washington Heights in Manhattan. He was a musician. He studied at Juilliard. He played with jazz band.

during World War II. Bebop jazz, to be exact. Greenspan played the saxophone, but he also followed the beat of his own drum. He was a nerd. You know, when his bandmates, when they were taking their breaks, they would go off and smoke cigarettes or pot.

And Alan Greensman would go read biographies at J.P. Morgan. And he later wrote that he'd much rather be reading about iron ore deposits in South America than gone with the wind. So he was interested in the name. nuts and bolts of what made the economy move. Greenspan had always loved math. And after reading all those biographies on his own,

he eventually studied economics at New York University. The best economic decision I ever made in my life was to decide to leave the music business and go into economics. In the 1950s, he started his own business forecasting firm. Greenspan earned a reputation as an analytical whiz, who could pour over data and accurately figure out when an industry was on an upswing, or about to hit a slump. It made a tidy sum selling his insights

about the business cycle to the biggest CEOs and U.S. businesses in the country. Greenspan was a libertarian who believed in free markets and was close friends with Ayn Rand, the famous philosopher and writer. In his younger years, he was a big critic of the central bank.

According to one biography, he called it one of the, quote, historic disasters in American. in history. Greenspan's reluctance toward formal economic policy changed in 1968. That year, Greenspan

began advising Richard Nixon's campaign. Later, he served on Gerald Ford's Council of Economic Advisors. He was extremely political. I'm not saying he was a partisan operator, but he was somebody who courted lawmakers. He made sure that he had support

to do whatever he might need to do. In 1987, His career took a major leap when President Ronald Reagan appointed him chairman of the Federal Reserve. Today, it's my pleasure to welcome Alan Greenspan back to official service to his country. The Fed's job is to keep the economy running smoothly. It controls inflation by raising or lowering interest rates. It's also charged with regulating banks and other financial institutions. But perhaps the Fed is best known for its conduct of monetary policy,

managing the rate of growth and the supply of money. How the Fed performs this job directly affects vital economic factors. Inflation, interest rates, the overall rate of economic expansion itself. As Fed Chair, Greenspan became known as the maestro of the economy, thanks to two bold calls he made in the 1990s. The first was in 1994 when he launched a preemptive strike against inflation. He was concerned that the economy was turning, and he didn't want the Fed to be caught behind.

In that case, the Fed raised interest rates without triggering a recession, delivering an elusive so-called soft landing. A few years later, when economists started worrying about inflation again, Greenspan made a different call. He kept rates low. And Greenspan was able to convince everybody to just sit on our hands here

because he saw something in the data that wasn't evident yet. The tech boom, the internet revolution was allowing for stronger, not-inflationary growth. And so he really earned sort of this reputation as the man who could see things that other people couldn't. Greenspan's success bolstered the Fed's independence. It seemed like he was so good at his job that politicians didn't want to get in his way. One of Greenspan's most notable changes to the Fed was in how it communicates.

You know how every couple months, people are anxiously waiting to see what the Fed will say about interest rates? That was his idea. When Alan Greenspan became the Fed chairman, the Fed didn't announce when they had changed interest rates. You had to sort of figure it out from what was happening in the market. What was the logic behind that? Why keep it a secret? That was how central bankers believed they should behave in those times. The governor of the Bank of England during World War II had a motto, never excuse, never explain. We shouldn't tell people what we're doing. They were sort of a Oz, Wizard of Oz like mystique, to the way these central bankers operated. That changed in 1994.

When Greenspan planned to raise interest rates... Greenspan wanted to put out a statement. He said at the meeting, raising interest rates is like hitting a gong, and I want to come out of this meeting, and I want people to know we've hit the gong. Why did Greenspan think it was important to hit the gong? Well, you know, if you were raising interest rates because you were worried that maybe there was going to be too much fraud, or access, telling people that you had done it would be one way to just make it clear to everybody. We are changing direction here. We have been doing one thing, and now we're doing another thing,

and we just want everybody to be clear about it. Sort of like it's more effective to make sure everybody knows that this is what we're doing and why. That's right. You keep people guessing, but if they guess wrong, then really what's the point of, you know, what are you doing? Even though he made the Fed more transparent, Greenspan himself was widely known for making almost no sense when he spoke about policy. Productivity growth and global restraint on inflation have not perceived to date the need to tighten policy in response to strong demand beyond what has occurred through falling inflation, upward pressure on the real federal funds rate and the modest increase in the nominal rate.

Sorry. Greenspan usually tried to avoid saying anything that could impact the markets. He once said, quote, since I've become a central banker, I've learned to mumble with great incoherence. Greenspan prized keeping his options open. He talked once about how,

when he was testifying before Congress, he could sort of see the next day's newspaper, he could see the headline coming as the words came out of his mouth. And if he realized he was saying too much, he would just sort of go off in a different direction because he always wanted to keep his options open. And he didn't want to say something

that might limit his flexibility to change his mind a day or a week or a month later. Greenspan's time as chairman coincided with one of the biggest economic expansions in U.S. history. And a lot of people gave, gave Greenspan credit for that. But he said himself that the boom was driven by technological change,

and probably would have happened without him. But he also put his stamp on the economy through this period. He believed in free trade. He believed in deregulation. And so he supported policies that would allow what was happening to continue. Sometimes it's just having a good sense when to not do anything, to sort of sit back and let things play out. How would you describe Greenspan's reputation at its peak?

I mean, at its peak, he was a rock star. He was the first celebrity central banker. When John McCain ran for president in 2000, he was asked, all the candidates were asked if they would reappoint Alan Greenspan, whose term was up that year. And he said, not only that, but if he died, I'd prop him up like the guy at Weekend to Bernie's.

I'd prop him up and put a pair of dark, glasses on him and keep him as long as we could. The fact is that Mr. Greenspan deserves great credit, great credit for this economic recovery. He's been a steady hand. He's not intelligible, but he's been a very steady hand on the tiller. He commanded a level of deference that's very hard to imagine in this much more polarized Washington that we live in, you know,

a quarter century later. Greenspan spent 18 and a half years leading the Fed. He stepped down in 2006, but it only took a couple years for a sterling reputation to take a tumble. That's after the break. Hey, y'all, it's Kelly Clarkson with Wayfair. Ever order furniture online and wonder, what if? Like, what if it doesn't hold up? That sofa was four days old.

You should have ordered from Wayfair. With Wayfair, there's no what if. Just style you love and quality you can trust. Visit Wayfair.ca. Wayfair, every style, every home. So Alan Greenspan retires as Federal Reserve Reserve, chairman in 2006. He goes out as a rock star, celebrity, central banker. And then his reputation started to shift pretty dramatically within just a few years. Can you walk us through what happened?

What happened was the bursting of the housing bubble. Fifty-five thousand foreclosures, 19,000 bank-owned properties, 68% of the available inventories in some form of distress. 2.6 million jobs were cut from the economy last year. That's the greatest decline since 1945. And a lot of the challenges that we saw with financial regulation, to some extent, could be blamed on sort of the deregulatory philosophy that was shared broadly in Washington in the period before the crisis and evangelized in particular by Alan Greenspan. During the Clinton years, Greenspan had been one of the chief architects of plans to ease up on banking regulations. He believed they just weren't necessary. Greenspan believed that financial institutions had a self-interest in that they wouldn't take risks that would wipe out their shareholders. Why would they do that?

They had their reputations to protect. He thought they would behave ethically in order to preserve those reputations. And so he took a hands-off approach to regulating these institutions. And for a while, that seemed as if it worked just fine. It worked, you could say, until it didn't. Just two years after Greenspan stepped down, the U.S. was suffering the worst financial crisis since the Great Depression. Greenspan was dragged in front of Congress to answer for his role in what happened.

Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself especially, are in a state of shocked disbelief. For so long, his views had gone relatively unquestioned, And at this hearing, now the tables are turning, and people are basically saying, you were the cop on the beat. We listened to you.

What happened? And, you know, Greenspan did acknowledge mistakes at that hearing. You found that your view of the world, your ideology was not right. It was not working. Precisely. No, that's precisely the reason I was shocked because I've been going for 40 years or more

with very considerable. evidence that it was working exceptionally well. You know, Alan Greensman was always somebody who was trying to forecast. He was trying to understand the economy. And so he said, I now need to understand what happened here because I had this whole philosophical worldview that's been exposed by what just happened here. Did he ever explain that, though? I mean, Greenspan made his reputation around being really good at forecasting stuff.

And then he missed, you know, one of the biggest financial calamities of our lifetimes. He did. And, you know, he had warned about the prospect for these kinds of bubbles when he was Fed chair. When you have low inflation, when you deliver the kind of low inflation that the Greenspan Fed was presiding over at the time, people begin to take more risks. There's a fundamental problem with monetary policy in that if you do too well, no good deed goes unpunished. You will see these sort of asset manias or asset booms. And the question then and the question today, is, should the Fed raise interest rates to prick these bubbles? And if not, then what do you do? In 2010, Congress passed the Dodd-Frank Act in an attempt to prevent a similar crisis from happening again. It also provided more information to consumers about the risks of certain financial products. Those regulations largely stayed intact until President Trump came on the scene. Both Trump administrations have pulled back on financial regulations, and Trump repeatedly criticized former Fed Chair Jerome Powell for not lowering interest rates.

The Trump administration has argued that the Fed should not be worried about inflation here. And the argument they've used to really prosecute that case is to point back to the Greenspan of 1996 and 1997 when there was pressure to raise interest rates and Greenspan resisted. The new chairman, Kevin Warsh, also looks to Greenspan as a model, both in his let it ride free market philosophy and in the way he communicated. After Greenspan left, the Fed chair eventually started holding a press conference

after every major meeting. Kevin Warsh thinks the Fed has been talking too much. All these press conferences, you put out your economic projections, that wasn't what Alan Greenspan did. Can we please fellow colleagues go back to a time when we didn't have to show all of our work and we didn't talk so much. And so that's the example

that Kevin Warsh is holding up. Be a little bit more indecipherable. Yes. Mumble incoherently. Yes, you know, sort of just keep your options open. Don't tie yourself down. Don't feel like you have to do something because you said you were going to do it

even though the world looked different then. Back in 2018, Nick sat down with Greenspan. President Trump had been openly pressuring the Fed to lower interest rates and Nick wanted to ask the man who many people thought embodied the institution about what it was like to sit in that chair. And so I wanted to understand from Greenspan what that relationship is like with the president and with other elected officials who were pushing you for a certain policy.

And he said to me once, you know, in all the years that I was Fed chair, I had numerous requests from elected officials to change interest rates. Do you know how many of those were to raise interest rates? And the answer, of course, was not. And he just made the observation that there's always going to be a bias on the part of elected officials for more stimulus, looser financial conditions today. And it's the Fed's job to sit there and decide on the merits. Greenspan has survived by his wife, the political journalist Andrea Mitchell. They were together for over 40 years.

After he passed away, Mitchell issued a statement. She said he was, quote, a giant of a man who helped shape the U.S. economy for decades under presidents of both parties, who was always honest in acknowledging his mistakes. She added, quote, He will be remembered for his brilliance and for his kindness. Being his life partner was the joy of my life.

That's all for today. Wednesday, June 24th. The journal is a co-production of Spotify and the World Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts throughout every weekday afternoon. Thanks for listening. See you tomorrow.