The Price of Greenspan's Success

"A weak-enough reading on May employment might very well tilt the odds overwhelmingly in favor of another rate cut," Lonski agreed. "Beyond that, I don't see a compelling reason [indicating] another rate cut is required."

In addition to the "record-smashing" pace of mortgage applications, the Institute for Supply Management reported higher-than-expected surveys for both manufacturing and services this week, the economist noted. Meanwhile, equities have rallied sharply, corporate bond spreads have narrowed and the dollar has fallen markedly in the past year. In addition, Moody's index of industrial metals is up 12.5% year to date and "not warning of deflation at all," he continued. Notably, that index excludes crude prices, which are hovering around $30 per barrel, a level few associate with deflationary pressures.

So if deflation really isn't a threat, why do Greenspan & Co. keep talking about it? In fairness, many believe the risks are real, citing deflationary pressures emanating most prominently from Japan and China, and more recently Germany. By their own admission, Fed officials have never dealt with deflation in the real world, so it's best for them to be overly aggressive in preventing its onset.

However, some believe the Fed waited too long to address the deflation threat and "the delay has weakened the system and potentially imperiled the economy to such an extent that it will be far more vulnerable to extraneous shocks," as Dave Hunter, chief market strategist at Kelley & Christensen, warned. "I think history will record that his recent shift to a more accommodative policy" -- meaning faster monetary growth and not just lower rates -- "was 'too little, too late.'"

In other words, Greenspan emerging victorious isn't guaranteed, even if he's ahead of the game right now.