No Favors From the Fed
Embedded in Alan GreenspanÛªs central-banker rhetoric to Congress last week was terrible news for President Clinton: The Federal Reserve will not run an inflationary policy to soften the havoc wrought by higher taxes.</br></br>Federal Reserve Chairman Greenspan's circumlocutions obscured the hard reality. Present low short-term interest rates are insupportable and will be raised by the Fed; the question is not if. but when. Thus, there are limits to how far the central bank will go in pumping out money to soften the harsh effects of ClintonÛªs tax-raising binge.</br></br>This is agonizing for Clinton economic strategists because of the dirty little secret that his program will contractÛÓnot expandÛÓthe economy. If the central bank will not accommodate that contraction with easy money. whatÛªs the president to do? Unleash the dogs of Capitol Hill to wreak vengeance on the Fed?</br></br>Tension has built through the administrationÛªs first six months. The White House persuaded congressional Fed-bashers to hold their fire while Clinton charmed GreenspanÛÓincluding a cozy dinner at the executive mansion a few* weeks ago. Senate Finance Committee Chairman Pat Moynihan is one Democrat who bluntly admits Clinton would shrink the economy but has called easy money GreenspanÛªs ÛÏend of the bargain."</br></br>To Greenspan and his colleagues at the Fed, there is no bargain. The chairman has never endorsed the Clinton package and certainly has not promised to never raise interest rates.