More jobs, more confidence The Clinton economy: Cooperation with Fed's Greenspan paying off for president.


FOR LUCKY BILL CLINTON, "happy days are here again." Although that old New Deal standby was hardly heard at the Democratic National Convention, its message resonates in the buoyant economic news driving the Clinton re-election campaign. With the unemployment rate at an eight-year low of 5.1 percent (compared to the 7.6 percent rate that helped send George Bush to defeat four years ago), the incumbent president is basking in a 55 percent approval rating for the way he has handled the economy.

True enough, some of Mr. Clinton's current good fortune stems from an early setback. Had Congress not rejected his 1993 economic stimulus bill, he could never have cut the annual deficit in half. Nor, after such an inflationary move, would he have established good rapport with Federal Reserve chairman Alan Greenspan.

Despite speculation that the Fed will raise interest rates in light of the strong job and earnings picture, neither the financial markets nor the Clinton campaign seem to be spooked. The inflation rate is holding steady at 3 percent and high officials in the Fed continue to believe the "hot" economy will cool off shortly.

Early in the Clinton term, Republican Greenspan made a "preemptive strike" against inflation by raising short-term interest rates. Mr. Clinton prudently did not object. Then, as the president started his comeback last year, Mr. Greenspan reduced rates to prolong the slow but steady recovery. His reward? Reappointment by the Democrat in the White House.

The Fed chairman, despite his inflation-hawk reputation, resisted sentiment on his board for a rise in interest rates in July and August. He told a meeting of central bankers that "now, for the first time in at least a generation, the goal of price stability is within reach of all the major industrial countries." And he even suggested that current statistical methods exaggerate the inflation rate.

If the Federal Funds rate is increased a quarter or half a percentage point later this month, this would be an unusual move so close to election day. But, conversely, its impact on the economy would not be felt in time to effect voter sentiment. Right now, consumer confidence is at its highest point in the decade. If this continues for another eight weeks, Republican Bob Dole could be the victim of a Clinton landslide.

Pub Date: 9/08/96

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