It's the nagging question that comes up every four years: Does the Federal Reserve try to influence presidential elections?
When Alan Greenspan, Fed chairman and longtime friend of Vice President Dick Cheney, convenes the Federal Open Market Committee tuesday, will he keep interest rates low because of the data or with an eye to the polls or both?
According to tradition, the central bank strives for strict neutrality in an election year by avoiding policy changes as much as possible. But political pressures in Washington are enormous. And the Fed's record is not quite so straightforward as tradition suggests.
The most suspicious activity occurred in 1971 and '72. At the time, a prominent journalist accused Chairman Arthur Burns of trying to reelect President Nixon by keeping interest rates lower than was justified by a robust economic expansion and growing inflation.
"Burns was very, very political," says Mickey Levy, who worked for him at the American Enterprise Institute after Dr. Burns left government. When he asked Burns about Nixon's influence, he got a lame answer, says Mr. Levy, who is now chief economist of the Banc of America Securities in New York.
But Alan Meltzer, an economist at Carnegie Mellon University in Pittsburgh who has studied Nixon's taped conversations with Burns, concludes there was "no conspiracy ... no cabal" between the two on Fed monetary policy.
Immediately after Nixon sent his economic policy aide to the Fed building to pressure Burns for easy money, Burns is heard on the phone to Nixon warning him that if he does this again, he will have the aide "thrown out bodily." (When I questioned Burns about the charge of political accommodation in an interview in the mid-1970s, he vehemently denied it.)
Except for that episode, the record since 1960 supports the notion that the central bank has stayed independent, writes Levy in a recent Wall Street Journal article, "not an easy accomplishment in the politically charged environment inside the Beltway."
But Gary Hufbauer and Paul Grieco, two researchers at the Institute for International Economics in Washington, disagree.
Looking at the Federal funds rate in the most politically sensitive six months preceding a presidential election, they find the average number of interest-rate changes was 0.8 in the 11 election years and 1.4 in the 77 nonelection years. Moreover, the Fed was twice as likely to lower rates than raise them in presidential election years, versus a 50-50 split in other years.
That correlation doesn't prove an election-year conspiracy between the White House and the Fed, says Mr. Grieco. But "almost everything that happens in Washington takes account of an election."
Which brings us to the current Fed chairman. Although Mr. Greenspan is a Republican, the first President Bush held that he didn't ease monetary policy aggressively enough in 1991 and '92 to get him reelected. "I reappointed him, and he disappointed me," Bush complained.
Indeed, the Fed was slow to recognize the recession of 1990-91. But many economists blame commercial-bank financial problems, leading to tight lending practices, as the leading cause for the jobless recovery of that era.
Similarly, the current President Bush has faced a jobless recovery until the last few months. But this is due to a host of problems - Sept. 11, the Iraq war, corporate scandals, extraordinary productivity gains, weakness in corporate pension funds, and the stock market crash - not to monetary policy, says Tom Schlesinger, executive director of the Financial Markets Center, a nonprofit doing research on the nation's central bank.
So better than two years into a recovery with output surging, is Greenspan favoring the reelection of President Bush by keeping short-term interest rates at their lowest level in more than 40 years?
"Judged purely by his actions, the answer is 'yes,'" says Mr. Schlesinger. "In every way possible, the Fed's monetary policy seems to be remarkably accommodative by historic standards."
Schlesinger isn't accusing Greenspan and other Fed policymakers of carrying out a politically motivated low-interest-rate policy. He doesn't claim to be able to read the motives and minds of the 12 voting members of the Fed's Open Market Committee who set the rates. "In general, the Fed doesn't want to be seen as pushing electoral prospects one way or another," says Schlesinger.
And many economists argue that low inflation and the recovery's failure to create many new jobs justify the Fed's current easy money policy. Nor does Wall Street anticipate that the Fed will raise interest rates this week or for months to come - perhaps not even until after the election.
But here's a suggestion aimed at removing such doubts in the future. Schlesinger argues the Fed should open its policy deliberations to the press. Congress opened its sessions to television two decades or so ago. It's time for the Fed to do the same.
It could confirm what a former president of the New York Fed, Allan Sproul, told Congress decades ago: that the Fed was "independent within government, not of the government."