It was very clear by the late 1990s that Federal Reserve Chairman Alan Greenspan wanted to make nice with the President Clinton White House.
A good relationship began much earlier when Greenspan attended Clinton’s first State of the Union address in 1993 and was seated between First Lady Hillary Clinton and Tipper Gore, wife of Vice President Al Gore.
Right there on TV you could see the three of them — friendly as could be.
“Tongues began to wag,” wrote a Washington Post reporter. “What on earth was the conservative, Republican, inflation-fighting chairman of the nation’s central bank doing sitting next to the wife of the liberal, Democratic, growth-boosting president.”
The fact is, Greenspan shouldn’t have been seen with any politician on that day. His role as Fed chairman should have been seen as apolitical, and Greenspan should not have been sitting between the wives of any president and vice president.
Then came Clinton’s impeachment in December 1998 — and while Greenspan would never admit it — his policy of sharply reducing interest rates at precisely that time of political turmoil helped Clinton enormously.
No president would want to be in trouble when rates are high and the economy is slowing, which could turn popular opinion against him.
Those rate cuts — with Fed funds going from 7.06 percent to 4.07 percent that year — helped the country stay in a happy mood, which would last until the dot-com stock market bubble popped a couple of years later.
Other things were going on as well, especially the collapse of Long Term Capital Management, a hedge fund, that rocked the financial system. But there are always other things going on; today it’s the trade war and chaos in the repurchase — repo — market in government securities.
So, I’m wondering what President Trump can expect from his Fed chairman during the current impeachment.
The relationship between Trump and Fed Chairman Jerome “Jay” Powell can best be described as strained — with all the strain coming from the president’s side.
“Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision! A terrible communicator!” Trump tweeted out in September after the Fed cut interest rates but not by as much as Trump wanted.
That was just one in a string of harsh criticisms by Trump of Powell and the Fed. The pressure on Powell was so intense that rumors abounded that he was about to be fired.
But more recently, the president tried to be nicer.
There was a meeting with Powell last month after which Trump said: “Just finished a very good & cordial meeting at the White House with Jay Powell of the Federal Reserve. Everything was discussed including interest rates, negative interest, low inflation, easing, Dollar strength & its effect on manufacturing, trade with China, E.U. & others, etc.”
The Fed, in a statement shortly afterward, was quick to stress its political independence: “Chair Powell’s comments were consistent with his remarks at his congressional hearings last week.”
It added: “He did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming information that bears on the outlook for the economy.”
In other words, Powell didn’t give anything to Trump.
So, it is pretty clear that Powell isn’t going to be Trump’s patsy like Greenspan was Clinton’s.
And that could become a problem if the economy starts to turn down during or after the impeachment.
The economy in 1998 was nothing like it is today — it was better, with a gross domestic product of 4.5 percent. It’s growing slightly over 2 percent today.
Yet, in a 4.5 percent growth economy, Greenspan was cutting rates like mad.
There was another excuse back then — the Y2K panic, what amounted to a false alarm about how the click over to 2000 would corrupt computers and wreck the economy.
So, with the economy’s weak growth, Trump may have a real argument that Powell should be cutting. But Powell — if he doesn’t want to cave in to the president — has a counter argument: Today’s rates can’t be reduced a lot more and future rate cuts might be needed if political tensions rise.
There’s one other important difference between today and 1998.
When the impeachment of Trump is over, the next act in this political drama will take place.
There was no second act in 1998. Clinton got off, and he continued with relatively few aftereffects.
The second act this time will be when Attorney General Bill Barr and US Attorney John Durham take action against the people — mostly Democrats and intelligence officials from the Obama administration — who were trying to, first, destroy Trump’s chances of winning the presidency and, second, his chance of successfully governing after he won.
Meanwhile, stocks should continue to do well as long as it looks likely that Trump will survive impeachment, and interest rates don’t rise.
But if there is some odd political turn of events, or if the economy suddenly slows or Trump’s trade deals sour, then the president will be in trouble.
The big question then will be: Will Jerome Powell behave like Alan Greenspan did in 1998?
Don’t count on it.