Fed's board split on rates Greenspan's power to cut rates curtailed.

April 08, 1991|By New York Times

Amid a rift at the Federal Reserve Board over whether lower interest rates are needed to help the nation out of recession, the central bank's policymakers have curtailed the authority of chairman Alan Greenspan to reduce rates on his own, high government officials said over the weekend.

The reduced authority means, in effect, that Greenspan must now work harder to justify interest-rate cuts that he wants to make during the six-week intervals between the meetings of the Federal Open Market Committee, the policymaking body of the Federal Reserve.

To do so, he will have to gather more evidence of a weakening economy than he has apparently felt required to gather in recent months.

In his nearly four years as chairman of the nation's central bank, Greenspan has not been so openly challenged by his fellow policymakers, a group consisting of himself, the four other governors of the Federal Reserve Board and the 12 presidents of the regional Federal Reserve Banks.

The debate over interest rates has taken the form of an argument over whether Greenspan, in reducing short-term interest rates sharply since early January, went beyond the authority granted to him by his colleagues. Supporters of Greenspan's actions invoke years of tradition to defend his right to act on his own.

But despite the talk about whether Greenspan exceeded his authority, seven of the Federal Reserve policymakers said in interviews that the heart of the debate is really over when the recession will end.

High government officials, who refused to be named, said that the focus on procedure prompted policymakers, at their regular private meeting on March 26, to alter a resolution that had been on the books since last summer.

The resolution had given Greenspan the discretion to cut rates on his own between meetings, without first consulting with the others in a telephone conference call, if the unfolding economic data showed the economy to be very weak.

He used that power to reduce rates on three occasions since early January, most recently on March 8.

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