The politics of interest rates

The Fed’s decision to lower interest rates a half point to 1 percent Tuesday reminds me of a political story from not so long ago.

Back when the first President Bush was running for re-election against Bill Clinton in 1991, he made a brief appearance before the Society of Business Editors and Writers (SABEW) annual meeting in Washington. The economy was in terrible shape, and the Clinton camp was making full use of its now famous line, “It’s the economy stupid.” But President Bush was busy blaming the Fed for keeping interest rates too high. (He later blamed Fed Chairman Alan Greenspan for his eventual defeat.)

I was in attendance, having just left an Urban Land Institute meeting in Seattle, where a famous economist told me the Fed could take interest rates to zero but that would not solve the unemployment problem. Loaded with that ammunition, I rose to ask the final question, despite protestations from a White House staffer who was trying to stop me, hoping to whisk the President off the stage.

I told the President about the economists prediction, and asked what else he could do you help the economy other than simply “bashing the fed”. A minute into his rambling answer, he stopped to ask me, “What is the predicate to your question?” To this day I do not know what he meant, but I did know he did not get it.

So I simply asked, “When will the economy turn around?” He glared at me and answered, “Would you accept sooner rather than later?” To tepid laughter, he then hastened to an exit behind disgruntled staffers. I turned to a fellow journalist and simply said, "He just doesn’t get it. He will lose to Clinton.”

The sad part was that the economy was actually already on the mend, luckily for Bill Clinton. This time around the Fed is dropping rates so low they may soon pay us to borrow. Unfortunately it may not be in time to save the younger President Bush’s party-mate, John McCain.

(Brian Banmiller is a national Business Correspondent for CBS News Radio, free lance writer and public speaker. The former television business news anchor in San Francisco can be reached at brian@banmilleronbusiness.com .)