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Greenspan cuts rate hopes
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September 16, 1998: 3:42 p.m. ET
Fed chairman says there is 'no coordinated effort' to cut interest rates
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NEW YORK (CNNfn) - Federal Reserve Chairman Alan Greenspan said Wednesday there is no current plan among the Group of Seven industrialized nations to coordinate a cut in interest rates as a means of quelling world financial turmoil.
Carefully avoiding any mention of a U.S. rate cut, Greenspan told members of the House Banking Committee the Fed is aware of the effects of international events on the U.S. economy, but he said the world's richest nations are not planning a coordinated rate cut.
"I can safely say there is no endeavor to coordinate an interest rate cut," Greenspan said. He also noted that while the Fed "perceives that our actions must focus on the American economy," the board realizes it must keep global economic concerns in mind, as well.
Wall Street had been looking forward to Greenspan to offer some indication that the Federal Reserve would cut interest rates. Instead, he focused on ways to solve the global financial crisis.
The Dow Jones industrial average was up about 45 points before Greenspan's remarks, then quickly fell into negative territory after he began his speech. The Dow was down nearly 50 points in mid-afternoon trading.
Capital controls not the answer
In his prepared remarks, Greenspan noted that capital control are not the answer to solving the financial crises.
Greenspan said some observers had concluded from the current global crisis that the free flow of capital across borders is detrimental to growth and living standards. "Such conclusions, in my judgment, are decidedly mistaken," he said.
Greenspan said countries affected by the turmoil need to bolster their financial institutions, though he noted temporary assistance would be provided as needed.
He also said central bankers from the Group of 10 -- which, despite its name, comprises 11 rich nations in Europe, North America and Japan -- are in close contact about the global financial problems.
"We are in fairly extensive conversations amongst the G10 central bank governors, and we're clearly exchanging views on all various different aspects of our economies and our views of the overall international situation," he said.
Noting the impact of the global economy on the financial health of the U.S., Greenspan said "deflationary forces" in East Asia are "clearly moving in our direction."
"It's not credible to perceive that we can remain an oasis of prosperity," he said.
Greenspan added that while the U.S. economy remains generally strong, "We are seeing the first signs of erosion at the edges, especially in manufacturing. That's a signal that the effects of East Asia and Russia on our financial system are increasingly a factor."
Japan needs to get its house in order
Both Greenspan and Treasury Secretary Robert Rubin, who also testified before the committee, said a strong Japanese economy is key to stimulating world financial growth. Greenspan in particular dismissed the notion that Japan needs international assistance to pull it out of its crisis, stressing that it's Japan's responsibility to get its financial situation under control. [734K WAV] or [734K AIFF].
Rubin also stressed U.S. support of the International Monetary Fund was imperative to stabilizing the global financial situation.
"It's imperative that Congress act and act now," he said. "Every day that Congress does not approve… IMF funding increases our vulnerability to a crisis, and decreases confidence in global markets, which is critically important."
Several committee members grilled both Greenspan and Rubin on the need for an $18 billion U.S. contribution to IMF funding despite the fact the U.S. has little control over IMF decisions. Greenspan noted that though he believes it's clear the IMF requires restructuring, there's no immediate need for such a move. 
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Federal Reserve
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