4/12/04 Bloomberg piece on Robert Parry, (retiring) president of the San Francisco Federal Reserve Bank.
Fed Loses Happy Inflation Hawk as Parry Retires: John Berry
April 12 (Bloomberg) -- After flying across the country to attend 146 consecutive meetings of the Federal Open Market Committee, Robert T. Parry, president of the San Francisco Federal Reserve Bank, is staying home on May 4 rather than trekking to Washington for the next policymaking session.
``I probably will start twitching about then,'' said Parry, who is retiring next month as he turns 65.
A departing FOMC member normally doesn't attend the final committee meeting before he leaves.
When Parry went to his first FOMC session in February 1986, Paul A. Volcker was Federal Reserve chairman and the central bank's price stability goal still seemed unattainable.
The Volcker-led Fed had broken the back of the virulent inflation of the late 1970s and early 1980s only at the cost of the country's worst recession since the Great Depression, and it was far from clear whether there was political support for squeezing the remaining inflation out of the economy.
A Rare Dissent
Parry, who from the beginning supported Volcker and then Alan Greenspan in seeking price stability, quickly gained a reputation as a thoughtful economist and an inflation hawk. Now he looks back with pride at being part of an institution that over two decades achieved what he calls ``a low inflation environment.''
``Part of the accomplishments may be the result of good fortune'' Parry said in an interview in his office overlooking San Francisco Bay. ``But it was also the result of good policy.''
In the context of low inflation, last June he uncharacteristically dissented from the FOMC majority decision to cut its target for the overnight federal funds interest rate by a quarter-percentage point, to 1 percent. Parry, the inflation hawk, wanted a half-point reduction because he was worried about what appeared to be a faltering economy.
Parry said that he actually would have preferred to cut rates at the previous meeting in May, though he didn't dissent at that meeting.
``A dissent is a major thing,'' Parry said. The June dissent was only his third ever.
Greenspan on Parry
Asked about Parry's departure, Greenspan said, ``With Bob Parry's retirement, the Federal Reserve will miss a major policy maker. He combines a clear appreciation of regional developments with keen insight into the economy at the national level.
``He is a friend and a colleague who I have known and respected for almost three decades. I have always valued his perspectives, and wish him well in his next endeavors.''
Parry said he leaves expecting strong economic growth to continue with little threat of inflation, and the likelihood that growth will be rapid enough to create many additional jobs after a puzzling period of sub-par hiring.
``I have a forecast (for growth) and the first number is a `4','' Parry said.
Doesn't See Inflation Rising
As for inflation, he expects it to remain roughly where it has been for sometime, between 1 percent and 1.5 percent, depending on the measure.
In contrast, Parry recalls giving numerous speeches in the late 1970s, when he was chief economist at Security Pacific Bank, during which he asked his audiences what they thought U.S. inflation would be during the 1980s.
``They always said, at least 10 percent,'' he said.
``Peoples' attitudes about high inflation have changed dramatically. Could they change back? I suppose they could, but I doubt it'' because they have seen how well the economy can perform in a low inflation environment, Parry said.
That's one reason he is less convinced than he used to be that having the Fed adopt an explicit inflation target would be a wise thing to do.
Many proponents of inflation targeting have argued that setting a target would ``provide some protection against what a future FOMC or a chairman might do,'' Parry said. ``I am not sure how much protection an explicit target would provide.''
For one thing, setting such a target probably would require legislation or some kind of explicit recognition by Congress of its support for the idea, and opening up the basic laws covering the Fed's mandates and authority for congressional debate is something Fed officials have avoided whenever possible.
Greenspan's Successor
As for the successor to Greenspan -- his term on the Fed Board expires in early 2006 -- ``I would think that whoever is chosen by whatever party would be in favor of low inflation,'' Parry said.
Aside from truly taming inflation, Parry said that since the mid-1980s the Fed has responded quickly and effectively to the several crises that have arisen, such as the stock market crash of 1987, the Asian financial crises in 1997, the Russian bond default in 1998 that traumatized world bond markets and the 2001 recession in the United States.
The latter year was ``a good example of the Federal Reserve operating in a constructive way on many fronts,'' he said.
The Fed's aggressive pace of interest rate cuts helped limit the economic damage from the bursting of the stock market bubble and falling business investment following an unsustainable surge during the late 90s boom.
Rejects Bubble Criticism
Parry flatly rejects a complaint from some Fed critics that the central bank should have raised interest rates enough to have prevented the stock market bubble from developing in the first place.
``I really disagree with that,'' he said. ``The biggest mistake the Fed could have made was tightening too aggressively.''
The Fed policy makers didn't tighten because they gradually came to realize that productivity growth had accelerated sufficiently that the economy was able to grow more rapidly than in had in the 70s or 80s without triggering more inflation.
``If we had not recognized an acceleration of productivity growth (and had tightened) the growth of income and employment over that period would have been significantly less,'' Parry said.
``This recognition of productivity growth was not something that the FOMC saw all of a sudden,'' he said. ``I became convinced after some of my colleagues, certainly Chairman Greenspan.''
`They' Not `We'
While Parry didn't say so, his delay in understanding just how much productivity growth had accelerated probably made him contemplate some dissents along the way.
As for his own future, Parry has no set plans for what he does next, though he would like to join ``a couple'' of corporate boards and remain active in other professional ways.
And as to where Fed policy is headed this year and next, Parry, like most of his FOMC colleagues, said that at some point the 1 percent fed funds target will have to be raised. Exactly when is another matter.
``People try to figure out what we will do in the future. Who knows what we will do in the future?'' he said, forgetting for the moment that it's now ``they'' not ``we.''
To contact the writer of this column:
John M. Berry in Washington at jberry5@bloomberg.net.
Last Updated: April 12, 2004 00:03 EDT
© 2004 Bloomberg L.P. All rights reserved. |
