Inflation has Fed worried again Moves to check its growth could lead bank into battle with White House

June 01, 1993|By New York Times News Service

WASHINGTON -- Governors of the Federal Reserve say they intend to do what it takes to bring inflation below the 4 percent rate of the last few months -- a commitment that could put them on a collision course with the White House, which is eager for faster growth.

The worried mood at the Fed is far different from that earlier this year, when Fed Chairman Alan Greenspan started his honeymoon with President Clinton. At that time, with inflation dipping toward 2 percent, it seemed that Mr. Greenspan could relax and go fishing for all of 1993.

But Mr. Greenspan's happy days were rudely interrupted by an unexpected burst of inflation in April. Suddenly the central bank had to shift to a war footing, ready to attack the next outburst of rising prices.

This means the Federal Reserve may raise short-term interest rates in a month or two if inflation continues to grow. But the White House, which believes the current low interest rates are a boon to the economy, would view such action as a declaration of war. And it would probably direct its heavy artillery at Mr. Greenspan.

These strains are perhaps inevitable, because the chief executive and the central banker have different missions in life. The Federal Reserve's raison d'etre is combating inflation, and it is deeply worried that prices have climbed at an annualized clip of more than 4 percent in recent months.

"The central bank's purpose is to get ahead of the curve," said Wayne D. Angell, one of the seven governors of the Federal Reserve. "If we're ahead of the curve, our credibility and the value of our money is maintained. Some of my economist friends tell me, 'We don't feel much inflation out there, but we feel better knowing that you're worried about it.' "

But Mr. Clinton has a different mission: to create jobs and fix the nation's anemic growth rate. Probably the last thing he wants is higher interest rates, especially after the economy grew by a dismal nine-tenths of 1 percent in the first quarter.

Administration officials seem to be betting the house on continued low interest rates to lift the economy. They see that as the main, perhaps only, stimulus once its deficit-cutting plan and its tax increases kick in and start slowing growth.

The Federal Reserve's governors -- none appointed by Mr. Clinton -- serve 14-year terms to make them immune to the winds of politics.

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