Diversity on the Fed
GIVE the Federal Reserve Board its due. For the better part of the past dozen or so years, it has been - sometimes by default - the key actor in Washington on economic policy. Since the early 1980s, when the Fed encouraged the worst economic downturn since the Great Depression to quench double-digit inflation rates inherited from the late '70s, inflation has remained tame. And despite the recession of the early 1990s, the economy has, on average, continued to grow.
Unfortunately, that ``out of '70s'' experience seems so etched in the Fed's thinking that it seems to see inflation looming on the horizon where other equally respected economists do not. In the end, keeping inflation low or even nonexistent, they hold, is more critical to sustaining economic growth than is reducing unemployment. Until now, the voice of those concerned about the jobless has been inadequately represented in Fed deliberations. We hope President Clinton's recently announced intention to nominate two respected economists to the Fed will change that.
The two, Alan Binder and Janet Yellen, are said to favor a somewhat easier monetary policy than the Fed is now pursuing. Mr. Binder currently serves on the president's Council of Economic Advisers. Ms. Yellen is an economist from the University of California at Berkeley.
They both would bring to the Fed concerns about the effect of Fed decisions on average Americans. By historical standards, the current recovery is failing to generate sufficient jobs. Since the recovery began in early 1991, the number of jobs has grown 3.6 percent, compared with nearly 11 percent average job growth during similar periods in the previous half-dozen recoveries. Nevertheless, the Fed has seen fit to raise interest rates three times since the first of the year, raising concerns that tighter money could take too much steam out of the economy's recovery, perhaps touching off a recession.
Two more-liberal voices on the Fed's 12-member policymaking committee hardly suggests radical changes in direction. Nor do past writings and statements of the prospective new members necessarily indicate how they will vote if seated on the independent Fed. Still, the appointments represent a welcome and needed diversification of views on one of the country's most powerful policymaking bodies. We wish the nominees speedy confirmations.