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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (44837)	10/21/2003 3:53:03 AM
From: IQBAL LATIF	Respond to of 50167

Bizarre... (Via Eschaton.) In the Clinton administration, there were always three reasons for administration officials to take great care not to forecast interest rate movements: First, the Federal Reserve might not do whatever the administration official had forecast or urged it to do--in which case the administration official and his or her agency look like idiots. Second, the forecast might be accurate--in which case you have undermined confidence in the central bank's independence, and made it appear to be potentially susceptible to political pressure, which are both bad things. Third, you might undermine the Federal Reserve. If (say) the Federal Reserve is trying to keep the gap between short-term and long-term interest rates relatively low, then forecasting a rise in interest rates in the near future hinders their policy and annoys them. And you always want to work with, not against, the Federal Reserve. There's no upside: there's only a downside. Nevertheless, current Treasury Secretary John Snow has very different ideas: Anatole Koletsky: AMERICAN interest rates are set to rise over the next few months, one of President Bush’s most senior officials told The Times this weekend. However, far from being a dampener on the economy, John Snow, the US Treasury Secretary, said that Washington would welcome such a move because it would underline the strength of the country’s growth prospects. Given the American economy’s new-found strength, Mr Snow said he would be “frustrated and concerned” if there were not some upward movement in rates. Expectations of tighter US monetary policy began to take hold on Wall Street last week after speeches from two senior Federal Reserve officials, which drew attention to the exceptionally wide gap between today’s low interest rates and the US economy’s booming growth rate. However, Mr Snow’s comments, in an exclusive interview with The Times, offer the clearest sign so far that the US interest rate cycle is turning. While Mr Snow refrained from discussing monetary decisions, which are left to the Federal Reserve Board, his comments implied that the Bush Administration was preparing for much higher rates in the election year ahead — in contrast with Wall Street, where many leading banks are still predicting that there will be no tightening of monetary policy until 2005.... I don't know whether Snow is unteachable, or whether Treasury's International Affairs and Public Relations people are not doing their jobs. A government even mildly competent at economic policy learns quickly that the correct and the only answer for any executive branch official to make to any reporter's question about interest rates is: "The Federal Reserve is charged with controlling monetary and interest rate policy. The administration shares the Federal Reserve's goals of full employment and price stability, and has confidence in the institution." Similarly, the right answer to any reporter's question about exchange rates is: "The Treasury Secretary talks about exchange rates."* But the highly competent Bush administration clearly knows better than we did. Posted by DeLong at 07:39 PM