Greenspan weighs cut in rates

Alan Greenspan, chairman of the Federal Reserve, and Vice Chairman Alan Blinder have talked in recent days about the possibility of lowering interest rates when the Fed's policy-makers meet July 5 and 6, senior Fed officials said yesterday.

The conversations come amid signs of a steadily slowing economy. Yesterday, for example, the Labor Department reported that first-time claims for jobless benefits shot up last week to 395,000, the highest level in 17 months.


Mr. Blinder has publicly expressed concern that the economy might be weakening more than is necessary to control inflation. Now he appears ready to vote against any resolution at the July meeting that fails to lower interest rates, the senior officials said.

Mr. Greenspan has not yet indicated his position for the July meeting. But in fact there is a good chance that Mr. Greenspan and Mr. Blinder might both recommend a rate cut at that time, the Fed officials said. Joseph Coyne, chief spokesman for the Fed, had no comment.


Mr. Blinder, a Princeton University economist, and Janet Yellen, an economist on leave from the University of California at Berkeley, are President Clinton's only appointees to the Federal Reserve Board, which currently has six members.

Ms. Yellen, a Fed governor, is also reported to favor a rate cut and might side with Mr. Blinder against any resolution that kept rates unchanged instead of lowering them.

"The risks have increased on the down side," she said in an interview yesterday. She declined to state her position on a rate cut.

Mr. Blinder and Mr. Greenspan have displayed some basic differences in how they view the economy.

Mr. Blinder is reluctant to let the economy enter a sustained period of what he considers unnecessarily weak economic growth and rising unemployment. Mr. Greenspan has shown a willingness to let the economy come closer to recession if that keeps inflation from accelerating.

But a weak economy in 1996, a presidential election year, could undermine Mr. Clinton's re-election prospects.

Both Mr. Blinder and Mr. Greenspan also have a lot at stake.

If Mr. Clinton's appointees were to vote unsuccessfully for a rate cut and the economy were to revive later this year without the aid of such a cut, as some economists and several Fed policy-makers believe might happen, then Mr. Greenspan might get the applause.


That would come particularly from the financial markets, for refusing to cut rates and thus preventing a rebound from becoming too robust and inflationary.

But if the economy were to continue to decline instead of rebounding, thus risking a recession and raising the unemployment rate, then the blame might focus much more on Mr. Greenspan. That might let Mr. Blinder and Ms. Yellen -- and by extension the Clinton administration -- at least partly off the hook.