WASHINGTON -- Federal Reserve vice chairman Alan Blinder yesterday said he has no major differences with Fed chairman Alan Greenspan over monetary policy and is pleased with the economy's response to this year's rise in interest rates.
In a speech to the Mortgage Bankers Association, Blinder said he believes the Fed's moves to tighten credit this year have "a fighting chance" of guiding the economy into a slower pace of growth that keeps inflation in check.
"There is no rift between the chairman of the Federal Reserve and myself," said Blinder, who joined the central bank in June after his appointment by President Clinton. He added that he doesn't currently have "any operational differences of any significance" with other members of the Federal Open Market Committee.
Blinder has had to defend himself repeatedly against charges that he is soft on inflation, a problem that cropped up again last month when he spoke at a conference sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyo.
An account of the conference in the New York Times suggested that Blinder was more willing than Greenspan to use monetary policy to reduce the unemployment rate, currently at 6.1%. A column in this week's Washington Post by Robert Samuelson began, "Alan Blinder bombed in Jackson Hole."
In his speech yesterday, Blinder said he was surprised by news accounts of what he said and insisted that his comments had been misinterpreted. "I meant what I said and I said what I meant," he joked in a reference to the Dr. Seuss character Horton the Elephant.
Blinder said that like most economists he believes changes in interest rates can have a short-run impact on jobs and the economy, but that in the long run the Fed must focus on inflation. "There is a short-run tradeoff between inflation and unemployment, but not in the long run," he said.
Blinder pointed out that the Federal Reserve Act requires the Fed to try to achieve maximum economic growth while containing inflation. He said he personally takes both goals seriously, but that ultimately Fed officials "can control only inflation, not employment."
Such views are hardly controversial in economics, especially for a central banker. However, Blinder has had a hard time shaking the view that he might be less willing than other Republican-appointed Fed officials to fight inflation.
In an Aug. 10 interview with The Bond Buyer, Blinder said he believed the economy was close to the "natural rate" of unemployment, meaning the rate at which price pressures could begin to build. He also said he believes the economy's potential growth rate without stirring up inflation is around 2.5%, and he expressed the hope that the economy is slowing down to about that pace.
Blinder repeated those views again yesterday, saying the economy now appears to be growing "maybe a little more, maybe a little less" than 2.5%. The economy is operating "at pretty well full utilization," he went on, "without any acceleration of inflation."
Blinder said the economy "appears to be responding very modestly" to the Fed's moves to tighten credit this year, particularly in interest-sensitive areas such as housing.
While the record of Blinder's vote at the Aug. 16 FOMC meeting to raise short-term rates by half a percentage point has not been made public, analysts believe he did not dissent. And Blinder noted that there was no market reaction to the reports suggesting a rift among Fed officials over policy.
After his speech, Blinder told reporters that he does refute his earlier academic writings about how the Fed rate actions affect the economy and inflation. Some of those statements have been quoted by market researchers and critics in the press as evidence that he is soft on inflation.
But Blinder said his views are now shaped by his responsibilities as a Fed policymaker. "When you move to a different job in society, your role changes," he said. "I have a responsibility to go with the job."