Nearly all of the coverage in the media focused on the _ percent hike, with very little mention of the Fed's statement regarding its intention "at least for a time" to avoid any further moves.

A confrontation had been avoided. Blinder felt it was a good outcome, but he also realized that Greenspan was in total control.


Less than two weeks later, most of the FOMC members attended the Kansas City Federal Reserve's annual retreat in Jackson Hole, Wyoming. The overall theme of the gathering was "Reducing Unemployment," and Blinder was asked to give some concluding remarks at the end of the conference on Saturday, August 27.

He had spoken at the Jackson Hole conference before, as an academic unbound by the customs and responsibilities of working at the Fed. He made it clear at the outset of his 20-minute speech that he understood the difference: "It is quite clear that in my new job, my role is to say nothing -- and certainly not to say anything interesting," he joked.

Still, Blinder then argued that the Fed might be too focused on preserving price stability and fighting inflation. Shouldn't the Fed embrace with equal intensity the goal of maximum employment, a goal explicitly written into the most recent law governing the Fed? "The central bank does have a role in reducing unemployment," he said.

The next day, Blinder was dismayed to read the New York Times story on page 26, which stated that in his speech he "publicly broke ranks with most of his colleagues" and that his comments "revealed an intellectual split" within the Fed. On Monday, August 29, the Times pounced again with a business section front page story headlined "A Split Over Fed's Role; Clashes Seen After Vice Chairman Says Job Creation Should Also Be a Policy Goal." The story drew a sharp contrast between Blinder and Greenspan, who had recently reaffirmed his view that inflation fighting was the primary goal of the Fed.

As Blinder saw it, he'd been asked to deliver the summation speech at a seminar called "Reducing Unemployment." What else was he supposed to talk about?

The Full Employment and Balanced Growth Act of 1978, called the Humphrey-Hawkins Act after its legislative sponsors, mandated that the Fed do its best to achieve maximum employment, and Blinder thought he had merely drawn attention to that responsibility. A New York Times story disagreed, noting that emphasizing jobs over inflation was like "sticking needles in the eyes of central bankers."

Greenspan went on vacation without commenting, leaving Blinder to twist in media winds, which eventually dubbed the situation "L'affair Blinder." A three-inch stack of stories about a rift at the Fed followed.

A simple word or sentence to key Fed reporters from the chairman, even off the record, noting that the whole matter was part of a standard policy debate could have ended the furor, Blinder believed. He interpreted Greenspan's silence as intentional. For one reason or another, Greenspan wanted to let him twist.

Yet Blinder did not raise the issue with him directly, realizing that Greenspan had not only plausible but perfect deniability. The chairman hadn't created the controversy, and surely he couldn't be held accountable for the media. Blinder didn't want to go begging. In his mind, the "chairman who wouldn't speak" took on a life of its own. Blinder believed that Greenspan was manipulating the press. His silence was just as damaging as, if not more so than, any negative comments that he might have made. Nobody, Blinder believed, knew how skillfully Greenspan played the Washington political inside game. He was witnessing its subtle but deadly sting first hand.


Blinder was scheduled to give a speech in a downtown Washington hotel on September 8. Afterwards, dozens of reporters and many cameras awaited him. Blinder realized he had a choice either to act like a football player or to stop like a civilized person to answer a few questions. He stopped and answered the questions, downplaying any philosophical rift between himself and the chairman.

Copyright © 2000 by by Bob Woodward, Simon & Schuster