GENERALLY speaking, presidents are more eager to see interest rates fall than the Federal Reserve Board is. Presidents worry more about recessions, while the Federal Reserve's overriding responsibility is to defend the integrity of the dollar and keep the dragon of inflation at bay. The political tensions between the White House and the Federal Reserve almost always arise from that central difference. In 1985, at a time when those tensions were running high, the White House nominated Manuel H. Johnson to the board.
The Reagan administration, and particularly the supply siders within it, were vehemently suspicious of Paul Volcker, then the chairman of the board, and feared that his campaign against inflation was going to suffocate the boom that their theory predicted. Mr. Johnson was one of the early supply-side economists and began his career at the Federal Reserve with a dramatic vote against Mr. Volcker in behalf of lower interest rates.
But Mr. Johnson is also a peacemaker by inclination, and he understood clearly the damage that continued warfare within the board would inflict on the economy. As vice chairman, he later worked in harmony with Mr. Volcker and then with the present chairman, Alan Greenspan. More recently Mr. Johnson has been among those on the board who have most explicitly resisted the intermittent nudges from President Bush for easier credit, and from the Treasury for lower foreign exchange rates.
It has been a performance of some significance, for currently the Federal Reserve alone has the job of navigating the American economy. The budget has been jammed for a decade in the quarrelling between the White House and Congress over taxes and spending. That leaves monetary policy -- and the Federal Reserve, which runs it -- as the sole instrument through which public policy can operate day to day to keep the economy growing. This country owes a lot to the people who have been making its monetary policy.
Until recently, that policy has held the inflation rate in the range of 4 percent a year. But now growth is slowing, and the cries for easier credit are rising -- while inflation is beginning to accelerate again. This year it will probably be over 5 percent, for the first time in nine years.
Mr. Johnson intends to resign from the Federal Reserve this summer and return to George Mason University. He can take great satisfaction in the achievements of the board in the years in which he has been there. But its room for maneuver is now narrowing, and his successor is not going to have an easy job.