White House, Fed talks cause alarm

March 19, 1994|By New York Times News Service

WASHINGTON -- A presidential invitation to the chairman of the Federal Reserve for what the White House insisted was a routine meeting yesterday turned into an embarrassment for both men, as financial markets reacted with alarm to the appearance of administration encroachment on the central bank's independence.

Bond prices fell sharply and stocks briefly dipped yesterday morning after Fed and White House officials said Fed Chairman Alan Greenspan had canceled a planned trip to Houston.

Instead, he attended the president's weekly meeting with his top economic advisers to review the health of the economy.

Administration and Fed officials said the furor was the result of a succession of missteps.

Robert Rubin, the head of the National Economic Council, began discussing with aides Monday or Tuesday the possibility of inviting Mr. Greenspan but did not extend the invitation until Thursday at lunch time.

Mr. Greenspan accepted without mentioning his plans to go to Houston for a conference sponsored by the Federal Reserve Bank of Dallas.

He canceled the trip. "What he was going to do in Houston was open a panel discussion -- it wasn't like he was going to give a major policy address," Bob Stahly Moore, a spokesman for the Fed, said.

Participants at the Houston conference, many of them economists and professional Fed watchers, became alarmed as Fed officials began to tell them Thursday afternoon and yesterday morning that Mr. Greenspan would not attend because he had been summoned to the White House.

The Fed watchers, who had traveled to Houston to keep an eye on Mr. Greenspan, were caught flat-footed in the wrong city and began making agitated telephone calls to the East Coast to find out what was going on.

The White House and Fed expressed surprise at the strong reaction to yesterday's meeting and blamed each other for attracting attention to the meeting.

"There has never been a big fuss about this before," said Gene Sperling, a senior official on the White House National Economic Council. "It appears to me that the announcement by the people who were putting on the speech seemed somehow to create a false impression."

Bonds gave up almost all their gains from the week, with the yield on 30-year bonds rising to 6.90 percent, from 6.82 percent.

Administration and Fed officials went out of their way yesterday to describe the meeting as unimportant and said that interest rates were not discussed.

"We certainly didn't try to suggest or persuade Chairman Greenspan, nor should we, what his outlook or policy should be," said Thomas McLarty III, the White House's chief of staff.

"He reviewed both the domestic and world economies, sees good underlying fundamentals."

But Wall Street was not convinced that yesterday's White House meeting was unimportant or routine.

"I would certainly perceive it as an attempt to bring undue political pressure," said David Jones, a longtime Fed watcher at Aubrey Lanston & Co. in New York.

A presidential discussion of the economy's health can be a veiled way for the White House to signal the Fed that further interest rates could hurt economic growth and would be unwelcome, he said.

Financial markets are particularly nervous now because the Fed's interest-rate policy committee is scheduled to meet Tuesday and has been expected for weeks to raise rates then.

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