THE TENSION between the Treasury Department and the Federal Reserve Board constitutes a Washington paradox. It isn't easily explained in the terms of conventional politics. There hasn't been a time in recent memory when the Treasury and the Federal Reserve agreed as completely on the central issues of monetary policy. Nor has there been a time in recent memory when the antagonism between the two was so sharp.
The Truman administration was probably the last in which there was a comparable degree of strain. In those days the Treasury, worried about financing the wartime debt, wanted interest rates that were low and fixed. The banks' prime rate then, incidentally, was still under 3 percent. The Federal Reserve, worried about inflation, wanted higher and more flexible rates. That was a fundamental and hi pstoric collision.
Currently, in contrast, the differences--so far as they have been visible--are notable for their esoteric technicality and triviality. One frequent point of contention is, for example, whether banks' reserve requirements should be calculated on accounts that are contemporaneous or that are lagged two weeks. Unless you are a monetary economist, all that you need to know about this choice is that the theoretical advantages of the first alternative are offset by the errors and inconveniences that it generates. In any case, it's neither very interesting nor very important. If such audible strain is apparently being created by such small differences, you have to look farther for the real causes.
The Reagan administration is the first to bring militant monetarists into senior positions--men who have not only a policy but that doctrine to defend. The president has an enormous stake in the success of his economic strategy, and the men who steer the strategy have undertaken an extraordinary weight of responsibility within the administration. Management of the money supply is crucial to them, and it's not directly within their control; it's largely in the hands of the Federal Reserve. The Federal Reserve Board basically agrees with them on the present position, but it is a board appointed by earlier administrations, whose members are not, in the rigorous sense, reliable all-weather monetarists. That seems to underly the chivying, needling, and general back-seat driving to which the Treasury, almost in spite of itself, subjects the Federal Reserve.
There's a certain cost attached to this behavior. These minor disputes reverberate through the financial markets, suggesting more of an argument, and less stability of purpose, than in fact exists. It's also a distraction from the administration's central economic objective, which remains the control of its budget. Marginal improvements in the administration of the money supply are not going to reduce inflation and interest rates. That, under present circumstances, continues to require progress in diminishing the federal budget deficit.