WASHINGTON -- FOr those who missed it, a broadcast last week by CNBC correspondent Donald Van de Mark provided evidence that members of the Federal Reserve are split into two camps when it comes to setting policy on interest rates.
Mr. Van de Mark is a bright and energetic financial reporter for CNBC who probably gets around to more places in Washington than most print journalists, complete with camera crew. His report makes sense and suggests Chairman Alan Greenspan may be having a tough time carrying out his role as a consensus builder, which has been a prime characteristic of his leadership.
The report, citing an official familar with the May 20 meeting of the Federal Open Market Committee, confirms The Wall Street Journal report that Fed policymakers eliminated their long-standing bias in favor of lower short-term interest rates. Fed officials still decline to confirm the reported change in the policy directive, but they have not denied it, either.
Equally important, according to the CNBC report, the seven-member Federal Reserve Board is divided between doves who are inclined to lower rates further to sustain a muted recovery and hawks wishing to take a tougher stance and hold the line on rates. Mr. Greenspan is forced to straddle the two camps, trying to reconcile views and maintain a united front for the central bank.
The report says Board Governor Wayne Angell, a frequent dissenter in the Fed's inner council, shocked his colleagues by arguing for a policy directive that would be neutral but tilted in favor of higher rates. Other board members were not prepared to go along with the idea, but Governors John LaWare and Edward Kelley remained in the hawkish camp.
On the dovish side, board members Lawrence Lindsey and Vice Chairman David Mullins fretted that the economy may not be growing fast enough. They wanted to be prepared to lower rates further, if necessary. Board governor Susan Phillips is also believed to be dovish on rates.
The word around Washington is that Mr. Greenspan was furious about the leak to The Journal about the shift to a neutral policy directive because it undermined his flexibility to trim rates again to maintain the support of the doves. With a neutral directive, technically Mr. Greenspan still has the authority to cut rates if he wants to, but concurrence from his colleagues becomes more than a formality. It becomes a necessity, and a tough act when consensus at the board is fragile.
The other interesting point is that the board itself seems divided. Officially, rates are set by the FOMC, which includes the board, the president of the Federal Reserve Bank of New York, and presidents from four other Federal Reserve bank districts. The bank presidents in the past tended to take be more hawkish than the board members, who sit in Washington and are presidential appointees. But now the main difference of opinion seems to be among the board members themselves, not between the board and the bank presidents.
Fed officials tend to minimize their differences, and they make an art form out of couching differences of view in technicalities. And by and large, Mr. Greenspan has won high marks from his colleagues and in the financial markets for his leadership at the central bank. Votes to cut rates have generally been unanimous.
But with an economy trudging along and jobs still hard to find, the political pressures to cut rates remain considerable. Those pressures are no doubt being felt inside the the Fed, and a neutral policy directive could turn out to be embarrassment.