Inflation Points

There is more than just fighting inflation that the Fed has to consider. That done, it has to decide whether to attempt to correct the so-called imbalances--America's huge trade deficit, its savings deficiency--or let the economy grow, continue to suck in imports, and live with the imbalances. If Greenspan decides that the Fed must take decisive action to correct these imbalances, he will then have to choose between keeping rates down and relying on a falling dollar to reduce imports, or pushing them above the neutral to slow growth and therefore imports.

The intricacy of the task of monetary management should be obvious. Which is why markets tremble at the thought of the talented Greenspan's impending retirement on January 31 next year, and have begun worried speculation about his successor. Of which more in later columns.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.