The recession of 1990, if it comes, could be longer and deeper than expected because of a tough anti-inflation stance being taken by the Federal Reserve, some economists contend.
These analysts believe that was the message Federal Reserve Chairman Alan Greenspan delivered to Congress on Wednesday when he talked about "new and substantial risks" to the U.S. economy from the rise in oil prices after Iraq's invasion of Kuwait.Greenspan gave no indication that the central bank was on the verge of pushing interest rates lower. He said the economy was facing threats both from rising inflationary pressures and a possible recession.
The comments disappointed the Bush administration and financial markets, which had been hoping the Fed chief would emphasize recession risks and signal a willingness to ease credit to avert or at least lessen the severity of what would be the country's first economic slump in eight years.
Many analysts said Greenspan's comments sounded remarkably like the views being expressed by central bank officials in such countries as Japan and West Germany. Officials there have said they viewed the inflationary threats from the oil price shock as the greater threat.
"Central bank officials seem determined not to repeat the same mistakes they made in the oil price shocks of 1973 and 1979," said David Jones, an economist with Aubrey G. Lanston & Co., a New York securities dealer.
"In each of those cases, they panicked over the thought of a recession and eased too soon before they had snuffed out inflation," Jones said.
Jones said he originally believed the country was headed for a recession but that it would be a mild one beginning in the fourth quarter of this year and lasting through the winter.
But after Greenspan's comments, he said the downturn was likely to be more severe.