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Businessweek Archives

A Rate Hawk Starts Cooing


Up Front: FED FOLLIES

A RATE HAWK STARTS COOING

STAUNCH INFLATION HAWK Lawrence Lindsey is sounding downright dovish lately. Reason: Lindsey, the Federal Reserve's most avid supply sider, is worried that $50 billion in fiscal 1996 budget cuts sought by fellow Republicans in Congress could lop 0.7% off GDP growth--a blow to an economy struggling to regain its legs.

That's why Lindsey seems more eager than some colleagues to ease rates again. Other Fed types prefer to wait until after Congress delivers deficit reduction this fall. But Lindsey notes the long lag time for rate cuts to affect the economy: "In an ideal world, if we knew we were going to have $50 billion in deficit reduction, the rate reductions should begin occurring before the fourth quarter."

This switch has made an odd couple of Lindsey, an economist for the Reagan and Bush Administrations, and the Fed's leading Keynesian, Vice-Chairman Alan Blinder, a Clinton White House alum. Fed watchers believe Lindsey joined Blinder in making the successful case for a rate cut at the Fed policy meeting in July.EDITED BY LARRY LIGHT, WITH OLUWABUNMI SHABI Dean Foust


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