An article in Sunday's Business and Finance section of the Post incorrectly reported that Federal Reserve Board Chairman G. William Miller had voted with the minority on the Federal Open Market Committee. The vote was in a regular board meeting.
When President Carter decided in late 1977 to replace Arthur F. Burns as chairman of the Federal Reserve Board, there was widespread apprehension that the decision would prove disastrous. Conservatives warned that if Burns were not reappointed, inflation would accelerate sharply and the dollar would plummet.
Now, after 10 1/2 months under Burns' successor, G. William Miller, both those predictions have come true -- though it hardly is Miller's fault. By most standards, the 54-year-old former Textron Inc. executive is credited with having done a respectable enough job in a tough situation. But his performance still prompts questions over whether Burns would have done better.
The focus of the debate is a "hawks" va. "doves" skirmish over how far the Fed should have gone to combat inflation by tightening money and credit politices. Although Miller so far has steered a far tougher course than most outsiders had predicted, a vocal group of hard-liners still is complaining he hasn't moved decisively enough.
Moreover, conservatives gripe that the new chairman is too tied to the Carter administration to take the kind of hard, independent stand teh Fed ostensibly has assumed as the nation's premier inflation-fighter. "Burns understood economics and what it meant to bear down hard," says one disgruntled insider. "But Bill is afraid of being blamed for recession."
The issue is important because, in the minds of many analysts, the Fed's skill in the next several months could well determine the fate of the economy this year and next. If the central bank acts too harshly, it could crimp the economy's growth and plunge the nation into a recession. At the same time, to liberal a policy could fuel inflation further.
The controversy is ironic because, by historical standards at least, the Fed under Miller has been relatively tough-minded. In the few months the new chairman has been in office, short-term interest rates have soared from a relatively modest 6.3 percent to 9.4 percent -- and they're still climbing. And money supply growth finally has slowed.Clearly, Miller has been trying.
The problem is, the Fed has been saddled with a spate of outside developments that most economists weren't predicting when Miller first took office:
Inflation, which seemed to be declining during much of 1977, accelerated sharply last year, in part because of actions by the Carter administration. At the same time, the economy now appears headed for a mild recession. Miller is being forced to walk a tightrope lest overly tight monetary policy throw the nation into a severe slump.
Partly because of outsiders' perceptions of the administration's intentions, the dollar began puluging on foreign exchange markets.It was here that Burns' departure had its most significant impact. The dollar's slide forced the Fed to place the dollar's rescue ahead of domestic considerations. For months, Miller found himself having to raise interest rates to help the dollar, only to be roundly lambasted by the White House.
The fed's usual measures of monetary tightness have been blurred by the new six-month money market certificates being issued by thrift institutions. Ironically, creation of these certificates may have been Miller's boldest stroke -- and his most costly one as well. Designed to prevent mortgage funds from drying up, the securities worked spectacularly in protecting the housing industry.
But the absence of a slowdown in housing construction so far has helped keep the economy expanding more rapidly than either the Fed or the White House thinks is desirable, threatening to add inflationary pressures that could exacerbate a slump if one does occur, as most economists expect.
As a result, neither Miller nor any outside experts really knows for sure how tight the Fed's policy actually is, and consequently whether the central bank should continue to tighten or stop now to avert a major slump. Even conservative critics,,interpreting current figures by traditional standards, are less convinced than they were earlier that the Fed is being too liberal.
The controversy that Miller gradually is weathering is in marked contrast to the central bank chief's first few months in Washington, when it seemed almost that he could do no wrong. More gregarious and approachable than Burns, Miller charmed Congress, the press and his critics with a more open approach and a no-non-sense image. Within a few weeks, he had taken the town by storm.
But as critics had warned before he took office, it wasn't very long before the new-to-economics Fed chairman stumbled: His penchant for floating new ideas soon got him branded as a hip-shooter, particularly after he was quoted proposing -- and later eschewing -- an excess profits tax for business.
And Miller voted on the losing side in a major policy decision in the Federal Open Market Committee -- something insiders say Burns never would have allowed himself to be caught doing, even if he disagreed with the majority. And he insisted so much that the Fed wouldn't allow the economy to fall into a recession that Wall Streeterss soon began to wonder whether he wasn't too soft.
Miller also has enjoyed some important victories along the way: He's been influential on several occasions in turning White House policy around. Along with Tresury Secretary W. Michael Blumenthal, Miller persuaded Carter to trim the size of his tax cut last year. They also successfully got the president to seek further spending cuts, both last year and for fiscal 1980.
Perhaps his most dramatic win, however, was to prod Carter and his political advisers into endorsing explicitly the turn to high interest rates in last November's dollar-rescue plan. (The shift marked a complete turnaround from their previous carping. The coordination of White House-Fed policy was insisted upon by the West Germans as a condition for cooperating.)
An affable, quick-minded man with a bent toward plain blue or gray suits, Miller clearly is no match for Burns either as an economist or a bedrock symbol of conservatism. Burns consistently took a hard line in public if only to uphold his image -- even when he gave in privately. By contrast, Miller comes right out and admits he has doubts.
But most onlookers agree the new chairman has learned a good deal since his spectacular entry on the Washington scene last year. Somewhat more circumspect in public than he was when he first arrived, Miller still mixes well professionally in the capital's political and social millieu, but few claim they really know him. Associates say underneath he's something of a loner.
In an interview recently, Miller volunteered that he still is enjoying the Fed chairman's job immensely and is beginning to feel at home with it. He also disputed critics' charges that he's soft on inflation. Indeed, financial analysts note that despite all the criticism that the Fed has not been able to hold onto the reins, both short- and long-term monetary growth rates now are all within or below its targets.
How well Miller ultimately will fare in comparison to the more experienced Burns still is to be decided, of course. Burns spent seven years in the Fed chairman's job after years as a presidential adviser. Miller's tenure really only has begun. But the consensus is that his first 10 1/2 months haven't been the debacle that some analysts predicted when they heard Burns was going to leave.
Indeed, after Miller testified before the House Budget Committee last week, conservative Rep. Clair W. Burgener (R-Calif.) approvingly told the new chairman: "You don't look like Arthur Burns. I hope you don't mind if I say you sound very much like him." Miller smiled non-committally and -- uncharacteristically -- kept his counsel.