WASHINGTON (AFP) - US Federal Reserve chairman Alan Greenspan hailed the bank's 25-year record of stamping out inflation to stabilize the American economy.
Greenspan praised former central bank chief Paul Volcker's "decisive action" against rising prices at a landmark meeting of the Federal Open Market Committee in October 1979.
Volcker, facing a reported inflation rate running at more than 12 percent as he walked into the meeting, drastically restricted growth of the money supply to curb runaway prices.
Markets plunged. The economy fell into the deepest recession since the Great Depression. But the tactic also tamed inflation, which declined to 3.8 percent in 1982.
"A defining moment may shape the direction of an institution for decades to come. In the modern history of the Federal Reserve, the action it took on October 6, 1979, stands out as such a milestone," Greenspan told a conference at the Federal Reserve Bank of St. Louis.
"The policy change initiated under the leadership of chairman Paul Volcker on that Saturday morning in Washington rescued our nation's economy from a path of ever-escalating inflation and instability."
Greenspan last year allowed key short-term interest rates to slide to a 1958 low of 1.0 percent in an effort to fight an even more pernicious foe than inflation: deflation.
Since June, however, the central bank chief has been gently raising key short-term interest rates in a pre-emptive effort to avert over-stimulating the economy.