Fed minutes hint Greenspan reluctant to boost rates

August 20, 1994|By New York Times News Service

WASHINGTON -- The Federal Reserve's chairman, Alan Greenspan, appears to have been more reluctant than some of his colleagues to raise interest rates earlier this summer, judging from the notes of a meeting in July of top Fed officials.

The central bank's top interest-rate policy panel voted at its July meeting to allow Mr. Greenspan to raise interest rates at his discretion during the following weeks rather than wait for the next meeting of the group, according to minutes of the meeting released yesterday.

But Mr. Greenspan did not exercise this discretion, and the Federal Reserve did not raise rates until the its top policy-makers met Tuesday. Then Mr. Greenspan joined the other six members of the Federal Reserve Board in a unanimous vote for an increase of half a percentage point in the discount rate, which the central bank charges banks for overnight loans.

Also that day, the larger policy panel, the Federal Open Market Committee, made up of the Fed members and five presidents of the Fed's regional banks, voted a half-point increase in the target for the federal funds rate. That is the rate banks charge each other for overnight loans.

The vote on the federal funds rate has not been disclosed, but presumably Mr. Greenspan would not have supported a discount rate increase while opposing a rise in the federal funds rate.

The latest jump in short-term interest rates, along with the four that have preceded it this year, won a cautious endorsement yesterday from President Clinton. At a news conference he gave credit for the current economic expansion to his administration's policies and said:

"So I think that we have to recognize that the Fed did respond to the efforts we made, and what it's responding to now is a robust and growing economy. Of course it could be slowed down too much, but we don't have any evidence at this time that that has, in fact, occurred."

During late July and early August, Mr. Greenspan was perceived within the Federal Reserve, according to some officials, as more skeptical than his colleagues about whether higher rates were needed to slow the economy's strong growth. Consumer spending had slowed some, and a large buildup in inventories developed during the second quarter, signaling a possible slowdown that might make a rate increase unnecessary.

But some evidence has emerged in the last few days that spending remains strong, notably a Commerce Department report Tuesday that housing starts had jumped 4.7 percent in July.

While Mr. Greenspan can act on his own to raise rates, and did so as recently as April 18, the committee's vote on July 6 to give him that discretion seemed a vote of confidence amid reports suggesting he had lost some influence with the group.

Earlier this year, the panel had repeatedly raised interest rates at regularly scheduled meetings, without explicitly giving Mr. Greenspan the discretion to do so on his own in the periods between meetings.

Some analysts interpreted this as a signal that the Fed's other top policy-makers, without a discussion or a vote, had taken from Mr. Greenspan much of his authority.

Federal Reserve officials vehemently denied this at the time, saying that Mr. Greenspan had not lost any of his influence.

J. Alfred Broaddus Jr., president of the Federal Reserve Bank of Richmond, has been the most frequent dissenter pressing for faster interest-rate increases, according to the minutes released yesterday and the minutes of previous meetings.

But in an interview in the spring, he strongly stated his view that BTC disagreements over policy should not be interpreted as a lack of confidence in Mr. Greenspan, pointing out that dissents also occurred under previous Fed chairmen, including Arthur F. Burns, G. William Miller and Paul A. Volcker.

"I've been watching these meetings since 1973," said Mr. Broaddus, who attended the gatherings as a senior Fed economist before he became president of the Richmond Fed last year. "I don't see anything different now -- there were sharp disagreements under Burns, there were sharp disagreements under Miller and there were sharp disagreements under Volcker."

Federal Reserve officials are prohibited from giving interviews a week before and after each panel meeting, and were not available for comment yesterday.

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