(April 6) – “A day after Wall Street endured one of its most unnerving rides, Alan Greenspan, the Federal Reserve chairman, offered soothing words to investors today, saying as explicitly as he ever has that the central bank’s interest rate increases are not intended to drive down stock prices,” writes Richard Stevenson in today’s New York Times.

“But as he has now for months, Mr. Greenspan continued to identify the wealth being generated by rising stock prices as the primary cause of imbalances in the economy that could potentially lead to inflation.

“Mr. Greenspan seemed intent on drawing a distinction between raising or lowering interest rates based on movements in the stock market — a strategy he said would be ineffective and perhaps inappropriate for the Fed to attempt — and acknowledging that Wall Street’s effects on the rest of the economy are so powerful that they have to be taken into account in monetary policy.

“The distinction was subtle if not meaningless to some analysts and investors. In their view, Mr. Greenspan wants to have it both ways, putting pressure on the markets without taking heat for it, and suggested that the Fed chairman did not mind sowing a bit of uncertainty to keep the markets in check even as he reassures them.

“‘Each time he denies that he’s targeting asset prices, he highlights the fact that equity prices are central to monetary policy at the moment,’ said Rory Robertson, an economist at Macquarie Bank in New York. ‘Removing equity market strength is going to be part and parcel of removing economic imbalances, whether or not you say that you’re targeting equity prices.’

“Speaking at a White House conference on technology and the economy, Mr. Greenspan was much clearer that he was sticking for now to his strategy of raising rates in small steps until he is sure that the economy is on an even keel. He said the central bank would not go ‘far wrong if we maintain a consistent, vigilant, noninflationary monetary policy.’

“The Fed chairman peppered his speech with admiring phrases about the ways in which information technology has reshaped the economy in recent years, calling current conditions ‘profoundly different’ and ‘without precedent.’ And he said that the pickup over the last few years in the growth rate of productivity — potentially the most fundamentally beneficial change of this era in economic history — showed no signs of slowing.

“But Mr. Greenspan warned that the positive developments could be put at risk if the Fed allowed inflation to infect the economy. The risk of that happening, he said, stemmed from the most basic of misalignments in the economy, between demand, which is rising sharply, and supply, which cannot keep pace.