(FORTUNE Magazine) – Hardly anyone will venture an opinion about the capacity utilization rate, or whether the supplier-delivery index is too high or too low. But everybody seems to think they know exactly where short-term interest rates should be, which is another way of saying they know what monetary policy should be. In the days before and after Federal Reserve Chairman Alan Greenspan raised the Fed funds rate from 5% to 5.25%, everyone from the bartender at the local Ramada Inn to the nation's leading politicians had an opinion about it--most often, that it was a mistake.

Much of this criticism is mean-spirited. Ex-Congressman (and ex-quarterback) Jack Kemp accused Greenspan of having "buckled under to big banks and major industrialists." James K. Galbraith, an economist at Texas University (who inherited both his name and his leftish Weltanschauung from his famous father) wrote in the New York Times that Greenspan "is not concerned about inflation." Instead, said Galbraith fils, Greenspan's goals were: (1) to repress wages, (2) to increase the profits of banks, and (3) to benefit bond traders.

Greenspan's less ideological critics--the bartenders, mothers-in-law, and other casual monetary policy experts--don't usually impute such ulterior motives to him; they just don't want to see interest rates rise. It's an understandable point of view. Not that rates are particularly high by modern standards. The economy's been doing okay too, with decent growth and low unemployment. And the stock market, at least until recently--since, in fact, Greenspan got into the act--was doing very well indeed.

But the fact that so many people are so sure that Greenspan should have held interest rates steady suggests another question: If things were going so well with the Fed funds rate at 5%, wouldn't they have gone even better with the rate set at 4.5%, 3.5%, or even 2%?

Casual monetary experts, of course, don't have to worry about inflation; they can merely note that inflation is "not a problem." And that's their most basic disconnect with Greenspan--and with monetary economists in general. One of the elementary ideas of monetary economics is that it takes a while before interest-rate changes affect the economy--certainly months, maybe years. Greenspan isn't worried about the current inflation rate: he's worried about inflation rising in 1998.

Why might we give him the benefit of the doubt? For one thing, there's evidence that the Fed's forecasts are better than most Wall Streeters'. But the best reason is because of Greenspan's record. He has, in fact, done an A-plus job of anticipating the future and changing policy early enough to avoid problems. He has brought the core inflation rate (consumer prices, less food and energy) down significantly since he took over in 1987. The only hitch was the very mild recession of 1990. Since then, monetary policy has been successful. The last time the Fed raised interest rates to head off inflation was in 1994, and it worked. Inflation was contained, the economy continued to grow, and the markets shuddered but recovered. They even did pretty well afterward.

Tell that Ramada guy to get back to work!

RESEARCH ASSOCIATE Kerry L. Hubert