Moreover, Greenspan and the Fed maximized the rate cut's impact by announcing it when Wall Street was already chipper and had shrugged off recent bad earnings news from Intel and Cisco Systems. That kind of rally, if sustained, can head off a lot of trouble. And evidently, the Fed saw trouble ahead. And with the market in a funk, companies unsure of next quarter's prospects were not investing in their future growth. Greenspan has staked his professional reputation on the theory that the economic boom that started in 1991 was powered by business investment.
Investment begets productivity gains, which beget rising profits, which beget still more investment.
A virtuous cycle, economists called it. But with sagging corporate profits depressing investment, productivity stood next in line for a tumble. Along with it might have gone Greenspan's reputation. But Greenspan's effort to preserve his reputation on one front may endanger it elsewhere. But while bond investors may fret about that, Greenspan has a larger constituency to answer to.