WASHINGTON — Federal Reserve Chairman Alan Greenspan on Friday defended the Fed's decision to delay cutting interest rates until January despite growing signs of an economic slowdown. He said acting sooner could have caused even more trouble down the road.

        Mr. Greenspan, testifying at a House Budget Committee hearing, rejected the view of some critics that the dramatic slowdown occurred in part because the Fed botched monetary policy.

        “It is a very difficult judgment to make, but in retrospect, I see nothing that we did that strikes me as inappropriate as far as policy is concerned,” he said.

        Between June 1999 and May 2000, the Federal Reserve boosted interest rates six times in an effort to slow down the red-hot economy and prevent inflation.

        The Fed left interest rates unchanged until Jan. 3, when it slashed them by a half percentage point. That action was followed with another half-point reduction Jan. 31.

        “Had we moved too soon, in our judgment, we would have al tered the path of adjustment and conceivably created a higher level of economic activity than we are currently seeing but inducing far greater imbalances and a far greater correction of adjustment than we are now undergoing,” Mr. Greenspan told the budget committee.

        Economists viewed that comment as saying that Mr. Greenspan thought cutting interest rates in the fall would have revved up the economy so much that it would have caused inflation problems and forced the Fed to clamp down even tighter on interest rates, thus pushing the economy into a recession.

Fed keeps calm while consumers sweat
       

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