
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, April 8, 1991                   TAG: 9104080154
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A-10   EDITION: METRO 
SOURCE: The New York Times
DATELINE:                                 LENGTH: Medium

FED CHIEF'S INTEREST-RATE POWER CUT

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 policy-makers have curtailed the authority of the 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 policy-making 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 policy-makers, 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 policy-makers said in interviews that the heart of the debate is really over this question: Is the recession ending, or is the nation in for many more weeks of hard times?

Put another way, the question is whether the Federal Reserve should cut interest rates more to stimulate economic growth and insure a recovery, or keep them where they are, confident that a recovery by late summer is a sure thing. Further stimulation might soon become inflationary, they say.

"Anytime people at the Fed become disgruntled with policy or uncertain about it, there is a tendency to focus on procedure," said Wayne D. Angell, a Federal Reserve governor.

High government officials, who refused to be named, said that the focus on procedure prompted the policy-makers, at their regular closed-session meeting on March 26, to alter a resolution on the books since last summer.

The resolution had put the policy-makers on record as "tilted toward easing" interest rates.

The resolution had given Greenspan the discretion to cut rates on his own between meetings, 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, the day the Labor Department announced that the nation's unemployment rate in February had risen by three-tenths of a percentage point, to 6.5 percent.

by CNB