WASHINGTON - While the Federal Reserve under Chairman Alan Greenspan has resisted White pressure, a prominent economist said Wednesday, monetary policy has become more politicized as presidential balloting nears.
Easing actions this year "seem to have been shaped largely by election-year pressures, thereby harming the Fed's anti-inflationary credibility," David M. Jones, chief economist at Aubrey G. Lanston & Co., told a House subcommittee.
He contended that additional easing this year - in the absence of very strong evidence that the economy needs further help- would do irreparable harm to the Fed's anti-inflation credibility.
Mr. Jones was among a panel of economists summoned by the House Banking Committee's subcommittee on domestic monetary policy to consider whether monetary policy is unduly influenced by election-year politics. Their consensus response: Sometimes it is, and sometimes it isn't.
Political scientist Nathaniel Beck found evidence of a "political monetary cycle" in only three of the seven elections since 1956 - those of 1968, 1972, and 1984. The University of California professor said the political effect is more likely to be seen in the first year of a presidential term than in an election year.
"The Fed's power derives from its legitimacy," he said, "and the appearance of engaging in electoral manipulations would rob it of that source of power."
However, Mr. Beck said, "the Fed knows that the President wants a healthy economy near Election Day. Thus, the Fed is under pressure to administer its |harsh medicine' early in a term, accounting for the phenomenon of early-term monetarily induced recessions."
Duke University professor Thomas Havrilesky said: "There may be political influence in an election year" but exerted episodically, not as part of a cycle.
The panel appeared divided on whether the 1992 election is shaping monetary policy. Mr. Jones suggested that the Fed had already begun to accommodate President Bush's reelection hopes, but Michael Moran disagreed.
No Smoking Gun Seen
"In all likelihood, monetary policy during the past two years has not been sharply different from what it would have been in a world with a completely independent central bank," said Mr. Moran, chief economist of Daiwa Securities America Inc.
The economists said the most political of the Fed chairmen was Arthur Burns during the Nixon years. "He was a close confidant of Nixon's and taught him about political business cycles," said Mr. Beck. "But even there it is hard to find a smoking gun."
Mr. Jones warned that the three-way race that appears to be shaping up this year is "a major source of uncertainty for the [money] markets, here and abroad."