In an pointed declaration of independence, Federal Reserve Chairman Alan Greenspan yesterday asserted that the Reagan administration has not taken control of monetary policy away from the Fed.
"I know of no Fed actions which are affected by the Treasury Department," Greenspan said in response to a query from Rep. Stephen L. Neal (D-N.C.) during a House Banking subcommittee hearing on banking regulation. "We try to coordinate with them in so far as we are both a part of the United States government ... but the presumption that the Treasury controls monetary policy is false," he said.
Some analysts have expressed concern that the Fed may pursue an overly generous monetary policy, with inflationary consequences, in response to Treasury Secretary James A. Baker III's call for lower interest rates to keep the nation out of a recession following the Oct. 19 stock market plunge. One reason for the concern about the Fed's independence is that Greenspan has been chairman for only three months and previously had been active in Republican politics.
The analysts generally approve of back the Fed's move to pump money into the banking system to calm jittery financial markets, but they worry that administration pressure could cause it to stick with an easier policy too long, particularly since 1988 is an election year.
"There is a growing perception ... in the financial press and so on that somehow the Department of the Treasury is now running monetary policy," Neal told Greenspan. "And I think that's, frankly, a dangerous perception that I hope you will put an end to in your way and as soon as possible. ... I think this is becoming a serious problem."
"I know of no Federal Reserve policy actions which are affected by the Treasury Department," Greenspan replied. "We do not solicit their views in policy questions. We obviously try to coordinate with them in the sense that we are part of the United States government. We should not have conflicting policies with the Treasury if we can avoid it. And as best I can judge, we seem to be at the moment looking at the world at large in a similar manner, and I hope we can continue to do so.
"I mean, obviously, I can't guarantee that, but the one thing that I can assure you is that the presumption that the Treasury Department is in control of monetary policy is false."
"Good," replied Neal.