Fed chief meets with president An earlier meeting preceded a boost in interest rates

May 06, 1998|By BLOOMBERG NEWS

WASHINGTON -- U.S. Federal Reserve Chairman Alan Greenspan and President Clinton met at Clinton's invitation at the White House yesterday for the first time in 16 months, and a White House spokesman wouldn't say whether they talked about the possibility that the Fed may raise interest rates.

Greenspan's last formal meeting with Clinton had been Jan. 8, 1997, according to White House spokesman Barry Toiv and Fed spokesman Joe Coyne. That came 19 weeks before the Fed last raised the overnight bank lending rate, by a quarter point to 5.5 percent.

U.S. bonds fell yesterday as some investors drew a connection between the timing of the White House meeting, which occurred only two weeks ahead of the Fed's next policy meeting -- May 19 -- and a possible Fed interest-rate increase. "A lot of guys are upset about this meeting," said Vincent Verterano, head of government bond trading at Nomura Securities.

The one-hour meeting wasn't prompted by policy issues, said Toiv. He declined to comment about the substance of the meeting. "Generally speaking, one of the reasons they can have good conversations is because [the details] don't leak out afterwards," he said.

Also at the meeting were Vice President Al Gore, Treasury Secretary Robert E. Rubin, Deputy Treasury Secretary Lawrence Summers and National Economic Council Chairman Gene Sperling.

White House and Fed aides had "been trying to schedule the meeting for some time," Toiv said when asked about the timing of Greenspan's visit.

Earlier in the day, Coyne and White House spokesman Mike McCurry had said they thought the "routine" meeting was one of several held each year. Both the White House and the Fed later clarified those statements to say Greenspan and Clinton hadn't met formally since January 1997.

"It is useful for them to talk and exchange views on the economy," McCurry told reporters. "We don't comment on monetary policy issues, and we're obviously not seeking any direct information on future Fed policy decisions."

Brisk economic growth has prompted the central bank to leave interest rates alone since March 1997.

While the strength of the first-quarter economy prompted the Fed to adopt a bias toward raising rates, the still-serene inflation environment and Fed officials' anticipation of slower growth will likely preclude the central bank's monetary policy panel, the Federal Open Market Committee, from boosting interest rates at the May 19 meeting, analysts said.

Still, some say that could change soon. "With activity already at a high level, clearly there is a risk that the economy could overheat at some point," said Alfred Broaddus, president of the Federal Reserve Bank of Richmond.

The Fed's official economic forecast calls for U.S. growth to slow to between 2.0 percent and 2.75 percent this year, as Asian demand for U.S.-made products declines. Exports slowed, though so far there's little evidence that the broad economy has cooled to that level.

Pub Date: 5/06/98

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