The Fed and Politics

ISN'T it odd that neither presidential candidate is saying much if anything about the Federal Reserve's monetary policy? President Bush's top economic advisers regard the stringent supply of money to the economy by the Fed (intended to keep inflation low) as the prime reason for the minuscule pace of the recovery and the high unemployment rate. Knowledgeable Democrats also privately blame the Fed for the economy's present cyclical troubles.

But neither side utters a critical peep in the campaign. Why?

Because the advisers figure that Fed-bashing has no political payoff. Rightly or not, the public tends to blame the president for a recession, praise him for a robust recovery. Most people have little understanding of the mechanisms of monetary policy. They may not know that the Fed is independent of the administration. So administration officials see little point in trying to shift any blame for economic weakness to the Fed. Instead Mr. Bush charges that the Democrat-controlled Congress has subverted t he president's program to revive the economy.

From the standpoint of the Clinton campaign, why not take advantage of the public's tendency to see the administration in charge in Washington as also in charge of the economy? Governor Clinton does not hesitate to blast President Bush for the slow growth during his term in office.

The chairman of the Council of Economic Advisers (CEA) has a regularly-scheduled breakfast with the chairman of the Federal Reserve Board to discuss monetary policy. Similarly the president lunches periodically with the Fed chairman to make his wishes known. But these private sessions have not always been persuasive with Chairman Alan Greenspan. So Treasury Secretary Nicholas Brady or CEA Chairman Michael Boskin periodically have fired a shot across the Fed's bow with some comment about excessive monetar y tightness. That hasn't worked, either.

If the economy doesn't show more vigor soon and Bush loses the election, Mr. Greenspan would deserve the blame or credit as much as Bill Clinton.