ONCE AGAIN the secretary of the Treasury, Donald T. Regan, has been talking about plans to bring the Federal Reserve Board under the control of the White House. The administration has not arrived at a decision on the question, Mr. Regan airily told reporters. It's a curious performance. Every time Mr. Regan floats this idea he sends severe vibrations through the financial markets. It's costly to the administration, shaking the sense of financial stability that any sensible government tries to propagate. But Mr. Regan keeps doing it.
How serious is the administration about this rather vague proposal? Perhaps not very serious at all -- at present. So far it seems to be hardly more than a refuge for people who fear that their economic program will not work out. You cn hear the claims already: If only the Federal Reserve had increased this or that component of the money supply at this or that crucial moment, the whole supply-side scheme would have succeeded gloriously.
But there is always the unpleasant possibility that, in an economic decline, a hard-pressed administration might actually resort to an attempt to impose direct control on the Federal Reserve. How? Through legislation adding more people to the current board -- including, as Mr. Regan has occasionally suggested, the secretary of the Treasury. That prospect has an impact on the financial markets, fearing what might come next. This administration takes great pride in the low inflation rate. But, as a practical matter, whenever it criticizes monetary policy it argues -- as Mr. Regan has just been doing -- that the Federal Reserve has held money too tight. The administration, or at least part of it, seems to be ready to take greater risks of inflation in order to achieve the faster economic growth that wold justify its theories and its tax cuts.
Investors, savers and lenders lost a lot of money in the late 1970s when they underestimated the momentum of inflation after the previous administration made a similar mistake. Because the present low inflation rate is mainly owed to the Federal Reserve, any attack on the Federal Reserve inevitably generates anxiety about future inflation.
A real attempt by the Reagan administration to reorganize the Federal Reserve would start a battle on the same scale as President Roosevelt's bill in 1937 to pack the Supreme Court. In that case, the president was defeated by his own party in the Senate. The same thing would be very likely to happen to any legislation to pack the Federal Reserve.