The Lure of FEDTHINK

Alan Greenspan is not a media hog. The chairman of the Federal Reserve Board does not call press conferences or regularly appear on television news talk shows; his jargon-studded, carefully hedged testimony to congressional committees is almost unsoundbitable. Slouch-shouldered, soft-spoken, and bespectacled, he comes across as an unworldly college professor.

Psst: It's an act. Greenspan is keenly interested in media coverage of the Fed. In fact, he tries to shape it through frequent off the record interviews with the small band of beat reporters who cover his institution. He counters coverage he thinks is wrong or threatening to the Fed; he quietly defends himself against rowdy critics such as Henry B. Gonzalez of Texas, who as chairman of the House Banking Committee kept up a steady fire on Fed secrecy. "You go in there and he says, 'Henry Gonzalez doesn't know what he's talking about,' " says a reporter who has visited Greenspan. But under the hush-hush ground rules set by the Fed chairman, the journalists are not even allowed to report that they have had a talk with a senior Fed official. It's as if the whole thing never happened.

The secret Greenspan sessions (past chairmen Paul Volcker and Arthur Burns did pretty much the same thing) are an example of the Fed's media strategy: soft spin, no fingerprints. It works quite well. Reporters who have been ushered into the chairman's office in the Fed's white-marble headquarters (I'm one of them) feel as if a veil has been lifted, if only for a moment. They're face to face with perhaps the most powerful economic-policymaker in the world. "I think it's masterful on his part," Fed reporter James E. Risen of the Los Angeles Times says of the Greenspan t�te-ˆ-t�tes, "but it co-opts you." After all, a critical article could mean the end of those talks with the chairman, putting a competitive reporter at a disadvantage.

Because much of what the Fed does is secret, such tactics are especially seductive. The Fed turns its need to be close-mouthed on some matters -- Greenspan can't talk openly about pending monetary-policy options without the risk of rattling financial markets -- to its advantage. "Remember, secrecy is power," says Ted Balbach, who spent seventeen years as research director for the St. Louis Fed.

Perhaps the real genius of the no-fingerprints tack is that it preserves the Fed's cherished reputation for being above the political fray. Since its creation by Congress in 1913, the institution has widely been viewed as a temple of economic science, a kind of sanctuary from the earthy world of politics. But as a practical matter, the Fed's bureaucratic imperative is no different from any other Washington agency's: to protect and advance the goals of the institution by all available means, including press spin.

It's a full-time job. In the tradition of populists before him, Gonzalez has been pushing reforms that would, among other things, permit Congress to audit the Fed's secret monetary-policy deliberations. And Senator Paul Sarbanes of Maryland proposes to strip the Fed's dozen regional bank presidents of their votes on monetary policy. Such changes would make the Fed more answerable to Congress and to the public, but the Fed and its supporters say they would remove the layer of political insulation that central banks must have in order to stave off inflation-producing demands for lower interest rates.

The Fed's stake in thwarting populist changes that it views as dangerous explains its alarmed reaction to a story by Alan S. Murray that appeared on the front page of The Wall Street Journal back on April 5, 1991. Murray, an ex-Fed reporter who now heads the newspaper's Washington bureau, is one of the few beat reporters in recent years who have risked the Fed's ire with sharp-angled coverage of its inner dynamics. That piece was about senior Fed policymakers, including some of the regional-bank presidents, who were challenging the authority of Greenspan to set interest rates without consulting his colleagues. A page-one story in The New York Times three days later covered the same ground.

Ten days after that The Washington Post's John M. Berry, the dean of the Fed-reporter fraternity and a favorite of the Fed, weighed in with a front-page piece, studded with inside-the-Fed material that had been given to him and that cast doubt on both articles. After it appeared, the story all but died. A congressional source with whom I spoke at the time was one of those who attributed the story's demise to the Fed's spin-control deftness. "With one John Berry story, they killed it off," the source said. "That's spectacular." Berry, for his part, says he can't recall any instance "in which anyone at the Fed has called me to try to get me to do a story to counter another story."

Some of the credit for the Fed's media skill has to go to Greenspan, a longtime companion of NBC News's Andrea Mitchell (and ex-beau of ABC News's Barbara Walters). He always invites a handful of Fed beat reporters, typically from The Washington Post, The New York Times, and The Wall Street Journal, to join Cabinet secretaries and other guests at his annual Fourth of July fireworks party at the Fed. More fun, including hiking, tennis, and white-water rafting awaits Fed reporters -- including many of the same elite crew -- invited with their spouses to the Kansas City Fed's economics conference in Jackson Hole, Wyoming, every August.

Greenspan has plenty of help with the press from Joseph R. Coyne, a former Associated Press economics reporter who joined the board's public-affairs office in 1968. A rare fingerprint was left by Coyne in a recently unearthed 1974 memo that he had sent to Arthur Burns, Fed chairman at the time. Burns and Coyne had been fretting over irreverent pieces on the Fed written by a Post Style-section reporter, Nicholas von Hoffman. In the memo, Coyne tells Burns that the Post economics reporter Hobart Rowen -- for whom Burns was a valuable source -- "thinks it would be an excellent idea for you to discuss the [von Hoffman] matter with [then Post publisher] Katharine Graham." Von Hoffman, who says none of his Post superiors ever warned him off the Fed stories, professes bafflement that his pieces even got the Fed's attention. "This is the same mentality as the diamond monopoly -- anything that gets out that is critical drives them crazy."

Yet the Fed is not a monolith, and its officials on occasion try to use the press to undermine policymakers within their own ranks. One of the Fed's new governors, vice chairman Alan S. Blinder, was recently on the receiving end of such a blade in the back. At this summer's Jackson Hole get-together, Blinder angered some some senior Fed officials by remarking in a speech that the Fed's job was to pursue not only stable prices but also maximum employment. This is, on paper, official Fed policy, but the speech was politically incorrect: Blinder, a liberal Democrat appointed by Bill Clinton, seemed to be departing from the Fed party line on the supreme need to protect against an inflation outbreak. At a barbecue that evening, some Fed officials, speaking on condition of anonymity, skewered Blinder in comments to Keith Bradsher, the Fed reporter for The New York Times. Bradsher ran with a story that sparked a press furor about whether Blinder was "soft" on inflation and a true-blue central banker. The novice policymaker, in effect, got publicly indoctrinated into the Fed.

As this episode shows, the institutional imperative that drives the Fed's media-relations strategy is linked to its main policy imperative: inflation control. Although the Fed's congressional charter explicitly directs it to pursue both stable prices and maximum employment, most Fed policymakers, like most central bankers, think their most important objective is price stability. Greenspan, in fact, has endorsed a change in the congressional charter to make "zero inflation" the Fed's sole mission. Such a change would delight bond dealers on Wall Street, for example, who lose money when a rise in inflation cheapens the value of their holdings, but not manufacturers, the housing industry, labor unions, and others whose top priority is a strong economy.

By November, when the Fed raised rates for the sixth time, such voices were getting louder and more difficult to ignore. The Washington Post managed to do so, however, on November 16, the day after the latest hike. The Post's Berry produced a page-one piece that explained the Fed's action without a single mention that anyone opposed it. (The piece, oddly, was illustrated on the inside jump with a picture of an anti-rate-hike demonstration, although the protesters' thinking was never explained.) Compare that with the same day's New York Times. Keith Bradsher's page-one news story referred to rate-hike opponents and their reasoning, and it was accompanied by a page-one analysis by Louis Uchitelle, headlined a debate on the greater evil: inflation or chill of pink slips.

Berry says his goal in general is "to explain what's going on." David Ignatius, the Post's top financial editor, says Berry "is seen as so experienced and knowledgeable that when he writes something, the market takes it as a signal. I think that produces a delicate problem: when your reporting is taken that seriously, reporters often feel that they have to be very careful and responsible. Too much of that is the enemy of aggressive journalism."

Fed beat reporters ought to be agnostic on such matters as zero inflation. But much Fed reporting is analysis and speculation gathered from experts, and any reporter who enters the orbit of Fed and ex-Fed policymakers and analysts -- many of the "Fedwatcher" bond-dealer economists who track the Fed are ex-Fed staff members; many academics have ties -- is in danger of getting sucked in. The Fed has "plants all over the place," says a veteran Fed reporter, Rob Norton of Fortune. This Fed network subtly exerts what the Los Angeles Times's Risen calls "an intellectual spin -- a condescending attitude toward people who don't understand or accept their assumptions about how the world works." This can be "a very intimidating thing," Risen adds.

How to combat Fedthink? "You need a wide, wide range of sources," says The Wall Street Journal's Murray. You can still ask Coyne to set up one of those "we-never-spoke" sessions with Greenspan -- every Fed reporter should have that experience -- but remember, too, that everything, access to the highest priest in the Fed temple included, has its price.

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