The next day, The New York Times reported that Blinder had held an "unscheduled" press conference. Son of a bitch, he said to himself. It looked as if he were putting himself forward, showboating. Fed governors didn't have press conferences. If he hadn't been discussed as a possible contender for Greenspan's job in 1996, Blinder believed the press attention would have subsided. He consistently maintained that he had never spoken to the White House about the possibility, and he seemed hurt that his relationship with Greenspan had been damaged. Nonetheless, Blinder refused to close the door on the possibility he might become the next Fed chairman.

He talked to The Wall Street Journal and was asked if he wanted to succeed Greenspan. "I don't spend a lot of time thinking about it," he said, suggesting that he spent at least some time on the subject. "It's a fantastic opportunity if it comes along. For the time being," he continued suggestively, "we have a very good chairman of the Fed. The job is not open."


In the days before the FOMC meeting on November 15, Blinder thought the economy was looking stronger -- too strong. A roar was coming up from the markets, saying that the Fed had goofed with its sideline statement and was behind the curve. Greenspan asked to see him again. When the chairman arrived, he said he wanted to make a dramatic gesture to show that the Fed was not behind the curve, to show the Fed's teeth in a big way.

Blinder agreed, saying that the economy was running hard and something had to be done. He told Greenspan that he would have no trouble with a _ percent increase at the coming meeting.

Greenspan wanted to move a full _ percent.

Blinder was a little bit surprised. He had concluded that they would eventually have to move a total of _ percent, but he thought that it might be wise to do it incrementally.

Greenspan wanted to get there right away. He didn't cite any specific data, focusing instead on his feeling that the pot was boiling and that _ percent was the only way for the Fed to get out ahead of the markets.

It was a major disagreement. Blinder was worried that _ of a point all at once could shatter confidence in the markets and have a negative effect on the rest of the economy, particularly on the people who were out there trying to buy homes.

Greenspan stood firm.

Hmmmmm-hmmmmm, Blinder finally said noncommittally -- a kind of unspoken "I don't know..." He did not indicate to the chairman that he would go along.


At the November meeting, Blinder said they might be heading toward raising rates so much that the Fed might chokes off most economic growth. What they were contemplating was not trivial. "It is very strong medicine," he said. Enough to stop even an economy with considerable momentum. "It is therefore not to be prescribed lightly."

"I must say the discussion this morning has been one of the best discussions I have heard around this table in quite a long while," Greenspan said when the others had finished. He said he would not dismiss Blinder's comments.

"I think we are behind the curve," he added, after offering a brief assessment of the economy. "I think that creating a mild surprise would be of significant value.

"So, I think that we have to be very careful at this stage and be certain that we are ahead of general expectations. I think we can do that with _ of a point."

To underscore his strong feelings, the chairman added, "I must tell you that _ percent makes me a little nervous. No, I take that back: It makes me very nervous and I would be disinclined to go in that direction." Anyone voting against him, in other words, was in favor of a very nervous chairman.

"I fear that doing _ of a point today rather than _ of a point may send us down an oversteering path," Blinder said. He reminded the committee that "the Greenspan Fed has never once moved the Fed funds rate by _ of a point in either direction. Not once. When this Fed has erred, it has been on the side of caution....I always thought that was a good idea.

Copyright © 2000 by by Bob Woodward, Simon & Schuster