Mr. Alan Greenspan ended his 18-year tenure as chairman of the U.S. Federal Reserve Board this week, stepping down after the Fed raised interest rates to their highest level in nearly five years.

Mr. Greenspan is widely regarded as an icon who navigated the U.S. economy through treacherous shoals. Still, he bequeathed his successor some troubling legacies that threaten the economy and may yet tarnish his legendary image.

Only a few weeks after Mr. Greenspan took the helm at the Federal Reserve in 1987, the U.S. stock market marked the biggest fall in its history, even worse than the crash of 1929. The chairman weathered this test by drastically cutting interest rates, which helped stabilize the U.S. economy and that of the world. A few years later, Iraq invaded Kuwait and the world responded with the first Persian Gulf War. Again, Mr. Greenspan’s steady hand kept the U.S. economy on an even track.

Throughout the unprecedented growth during the 1990s, the information technology revolution, the dot-com boom and bust, the stunning terrorist attacks on the United States and a second war with Iraq, Mr. Greenspan successfully steered the U.S. economy. Not bad for a former music student.

Mr. Greenspan’s greatest achievement was recognizing that productivity changes during the 1990s, brought about by the introduction of new technologies, permitted higher economic growth that did not fan inflation. Despite concerns about overheating, Mr. Greenspan kept interests rates low, which pushed U.S. unemployment levels to new lows.

The 9/11 terrorist attacks on the U.S. created great uncertainty, and the loose money policy continued. After weathering that crisis, concerns about rising oil prices and inflation in general have prompted the Fed to slowly raise interest rates. As expected, at the last meeting that Mr. Greenspan chaired, the Fed raised its lending rate for the 14th consecutive time by a quarter point, to 4.5 percent. That translates into a prime interest rate of about 7.25 percent for consumers.

While most market watchers expect yet another rate increase, it is not certain. Mr. Ben Bernanke, Mr. Greenspan’s successor, has stressed the need for continuity at the Fed, and the statement accompanying this week’s decision noted that inflationary pressures remain a concern. The new chairman will give his semi-annual testimony before Congress in mid-February and that should provide some insight into his thinking.

With the U.S. economy growing a healthy 3.5 percent in 2005 — despite a slowdown in the fourth quarter — there will be pressure to keep tightening. The market has apparently factored in one more increase, and Mr. Bernanke may want to signal that he will be no less an inflation hawk than was his predecessor. Long-term yields suggest expectations that a peak has been reached, however. Whether that’s true may depend on other, less positive elements of Mr. Greenspan’s legacy.

While the U.S. has had only two short recessions during Mr. Greenspan’s tenure, there are troubling indicators. Many economists worry about a housing bubble — inflated home prices that have encouraged spending and alarming levels of debt.

In testimony last year, Mr. Greenspan denied there was a real “bubble,” but conceded there were “signs of froth in some local markets where home prices seem to have risen to unsustainable levels.” Low interest rates and rising housing prices have encouraged Americans to take on record levels of debt. That tendency has been matched by fiscal imbalances by the U.S. federal government, courtesy of the Bush tax cuts and the war in Iraq.

Today, the U.S. needs about $2 billion a day in foreign money to support its spending habits, both public and private. While that is not Mr. Greenspan’s fault, he has been accused of failing to speak out more sharply against such profligacy.

The last worrisome legacy that he leaves is an unbalance in the international economy. Here, too, Mr. Greenspan is not the culprit. If anything, he did his job too well, providing a safe haven for investors that other regulators could not match. His ability to keep the U.S. economy on an even keel ensured that the global economy continued to function smoothly, with America serving as the market of last resort for goods produced elsewhere. His success was not matched by other key economies, such as Europe and Japan, which has left the global economy dangerously unsteady. A slowdown in the U.S. would have worldwide effects.

That magnifies the pressure on Mr. Bernanke. And it may well be that Mr. Greenspan’s most dangerous legacy is the expectation that his successor will handle the pressure as well as he did. For that, Mr. Bernanke will need both skill and luck. We wish him both in the months and years to come.

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