New Woodward book says Clinton objected to 1999 rate rise

Alan Greenspan met with Bill Clinton before Clinton's 1993 inauguration and urged him to cut the deficit, Bob Woodward's new book "Maestro" says

In this story: Greenspan urged cutting deficit Sources not revealed RELATED STORIES, SITES

WASHINGTON (Reuters) -- U.S. President Bill Clinton was opposed to a series of Federal Reserve interest rate hikes that started in June 1999, according to a new book that details Fed Chairman Alan Greenspan's relationship with the outgoing Democratic administration.

"Maestro: Greenspan's Fed and the American Boom," written by Washington Post reporter Bob Woodward -- who in the 1970s uncovered Richard Nixon's role in the Watergate scandal -- will hit stores on Tuesday. Excerpts of the book were published in the Post's Sunday magazine and released on Saturday.

	RESOURCES
Get all your financial news from CNNfn.com

"Did this have to happen? Clinton asked his economic team. I don't see any signs of inflation," Woodward wrote of Clinton's reaction when the president was told Greenspan had decided a quarter-point rise in short-term interest rates was needed to prevent the booming U.S. economy from overheating.

The Fed eventually raised the key overnight fed funds bank lending rate six times until May 2000, increasing borrowing costs by a total of 1.75 percent. The Fed, which next meets to discuss monetary strategy on Wednesday, has left rates unchanged at three meetings since May.

Woodward wrote that Clinton's economic advisers, including then-Treasury Secretary Robert Rubin and Gene Sperling, the head of the National Economic Council, defended Greenspan's decision.

"This is good. It will keep the expansion going longer," the book says Sperling told Clinton.

Bill Clinton was initially against the interest rate hikes Greenspan initiated, but his advisers approved of them

The book adds that Clinton's objections to the independent central bank's planned move were "muted" and less vocal than his private criticism of an earlier series of Fed rate rises in the mid-1990s.

Greenspan, widely credited for helping to keep inflation at bay during the nation's record expansion, was appointed to the Fed by President Ronald Reagan in 1987. He was reappointed by both Republican President George Bush and by Clinton. His current term expires in 2004.

Woodward's book provides a behind-the-scenes look at Greenspan's increasingly close working relationship with the Democratic White House. It claims the Republican central banker played a key role in convincing Clinton even before he took office that reducing the ballooning government deficit was crucial for the economy's long-term health.

Greenspan, now 74, told Clinton at the time that cutting the deficit would help reduce long-term market interest rates by convincing investors that inflation will remain under control. That, in turn, "could trigger a series of payoffs for the economy," Woodward said Greenspan argued.

"Perhaps no single overall economic event could do more to help the economy, businesses and society as a whole than a drop in long-term interest rates," Woodward says Greenspan told Clinton during a 2 1/2 hour private conversation in December 1992, just weeks before Clinton took office.

" 'You cannot procrastinate indefinitely on this issue,' " the book quotes Greenspan as telling Clinton. "Without action, (Greenspan) forecast 'financial catastrophe,' " the book adds.

The deficit-reduction plan that eventually passed Congress in August 1993 cut some $500 billion from the deficit over the next four years by increasing taxes and cutting some government spending.

Woodward -- who along with former colleague Carl Bernstein has kept the nation guessing for nearly 30 years about the identity of "Deep Throat," the main source of the Watergate story that toppled a president -- has declined to reveal his sources for the 272-page book.

But some Fed insiders have speculated that Woodward was granted at least some access to the reclusive Fed chairman. The Fed has declined to reveal whether Greenspan was a source for the book or if the chairman supported Woodward's latest work.

Copyright 2000 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

For Greenspan, it's hint-dropping season
October 3, 2000
Bush addresses range of issues in first online news interview
August 30, 2000
The Economy? Er, tune in after the fireworks
June 30, 2000
The Fed guessing game is over ... for now
June 28, 2000
Greenspan's medicine may finally be working
April 18, 2000

Federal Reserve System
PBS 'Frontline' interview: Bob Woodward
Simon & Schuster

Note: Pages will open in a new browser window

External sites are not endorsed by CNN Interactive.