Financial History Issue 131 (Fall 2019) - Page 22

“The traditional tools used by the Fed- eral Reserve to control money and credit expansion are a basic part of the fight against inflation. But in present circumstances, these tools need to be reinforced so that effective constraint can be achieved in ways that spread the burden reasonably and fairly. I’m therefore using my power under the Credit Control Act of 1969 to autho- rize the Federal Reserve to impose new restraints on the growth of credit on a limited and on a carefully targeted basis. Under this authority the Federal Reserve will first establish controls for credit cards and other unsecured loans but not for secured loans on homes, automobiles, and other durable goods, and second, to restrain credit exten- sions by commercial banks that are not members of the Federal Reserve System and also by certain other money market lenders.” “I’d like to see another lowering of interest rates. I think there’s room to do that. I can understand people worrying about inflation. But I don’t think that’s the big problem now…I think inflation appears to be pretty well under control. I don’t think the argument that lowering the rates will stimulate the long-term—shoot the long-term rates up—is valid anymore. And so, yes, I’d like to see it come down.” Bill Clinton strongly signaled that his relationship with the Fed would be promi- nent going forward by his placement of Fed Chairman Alan Greenspan at his first State of the Union address in January 1993: “The final aspect of our plan requires a national monetary policy which does not allow money growth to increase consistently faster than the growth of goods and services. In order to curb inflation, we need to slow the growth in our money supply. Now, we fully recognize the independence of the Federal Reserve System and will do nothing to interfere with or under- mine that independence. We will con- sult regularly with the Federal Reserve Board on all aspects of our economic program and will vigorously pursue budget policies that’ll make their job easier in reducing monetary growth.” “Tongues began to wag when Federal Reserve Chairman Alan Greenspan appeared at President Clinton’s State of the Union address sitting between Hillary Rodham Clinton and Tipper Gore. What on earth was the conser- vative, Republican, inflation-fighting Chairman of the nation’s central bank doing sitting next to the wife of the liberal, Democratic, growth-boosting President? Startled financial analysts and even some Fed officials wondered why Greenspan would send such a dramatic signal that he was making common cause with Clinton. Simply by sitting there, he appeared to be sacrificing a slice of the Fed’s vaunted independence…In early December, when Clinton invited the Fed Chair- man to fly to Little Rock, Arkansas, to discuss economic policy issues, the scheduled hour long session stretched to 21/2 hours and included lunch. They clearly had hit it off.” George H.W. Bush speaking to The New York Times in 1992: George W. Bush, arriving in Washing- ton, DC after his contentious election, Ronald Reagan’s first State of the Union address in 1981: 20    FINANCIAL HISTORY  |  Fall 2019  | similarly signaled the pivotal nature of the Fed in his administration’s plans by making his first stop a breakfast with then- Chairman Alan Greenspan. “Mr. Greenspan, who was welcoming the fourth President to pass through during his 13-year tenure, briefed Mr. Bush on the state of the economy. He may also have indicated whether, as the stock market expects, he will announce a loosening of the Fed’s monetary policy by reducing interest rates today. Mr. Bush was forthright in his admiration for Mr. Greenspan, who took the key job in 1987. He said, laying his hand on the Chairman’s shoulder: ‘I talked with a good man right here. We had a very strong dis- cussion about my confidence in his abilities…’ For part of their breakfast the two men were alone together, later being joined by Vice President-elect Dick Cheney and members of the new administration’s prospective eco- nomic team.” Barack Obama’s public record shows little by way of comments directed at Federal Reserve officials or pertaining to Fed policies, which seems surprising and somewhat refreshing. In fact, though, cir- cumstances precluded his doing so: with the Fed Funds rate target set below 0.5% Left: President George W. Bush announces the nomination of Ben Bernanke as the new Federal Reserve Chairman at a press conference on October 24, 2005, as current Federal Reserve Chairman Alan Greenspan looks on. (Credit: Jim Watson) Right: Federal Reserve Board Chairman Alan Greenspan speaks to the press after being reappointed by President George H.W. Bush to a second four-year term. (Credit: Bettmann)