Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, November 17, 1994 TAG: 9411180037
SECTION: EDITORIAL PAGE: A-22 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
Ordinarily, presidents hear the hurrahs or suffer the slings for variable fortunes. But that may be changing. On Nov. 8, voters didn't seem to credit Clinton much for the growing economy. Meanwhile, public-opinion polls suggest that the electorate, for the moment anyway, is looking more to the new Congress than to the president for economic leadership.
If so, Alan Greenspan and the Federal Reserve may have handed the resurgent Republicans, but probably also Clinton, an unpleasant November surprise: a boost in its discount interest rate of three-quarters of a point, the largest single increase since 1981 and the sixth increase this year.
The Fed sees inflation the threat, interest rates the cure. Prolongation of a steady recovery is worth cooling the economy a bit. Certainly, steering clear of inflation and its corrosive effects is worth a tap or two on the brakes.
But inflation is running at an annual rate of only 2.8 percent, and the view that it is currently a peril is not universal. It's a different economy, some argue, subject as never before to the discipline of the international marketplace. Recent economic growth may reflect noninflationary productivity improvements, rather than the wage-price push that sets off the inflation spiral.
If that's so, the Fed may be doing the wrong thing - unnecessarily slowing an otherwise healthy and noninflationary recovery, and threatening to widen the federal budget deficit by raising the government's debt-service costs.
Are Greenspan and the Fed like the proverbial generals who, refighting the last war, are befuddled by the different conditions of the new war? Or are they alert sentinels, keeping the inflation beast at bay? More than the fortunes of politicians are at stake.
by CNB