For most people, a growing economy is a good thing. Economic growth means more jobs, more money and an improved standard of living for a society — better health care, more secure retirements, a cleaner environment, children who are better fed and better educated, and fewer social maladies such as crime and poverty.

Over the past year, however, the Federal Reserve’s Federal Open Market Committee (FOMC) has raised interest rates in an effort to lessen economic growth. The Fed’s strategy appears to be based on the assumption that out-of-control inflation, a terrible economic condition that afflicted the U.S. twenty years ago, can be triggered by low unemployment or excessive growth.

Economists and investors alike have widely debated the Fed’s assumptions. After all, if their premise is true, slowing growth is beneficial if it staves off rampant inflation. If they’re wrong about what causes inflation, then the Fed is unnecessarily depriving Americans of the benefits of high growth.

It’s perhaps the most important economic policy debate going on right now, but a review of network news coverage found only one story in the past year that showed economists who second-guessed Fed policies. Instead, the networks’ economic reporters described the probable effect that each Fed move would have on the stock market or the overall economy, without questioning the notion that too much growth is a bad thing.

For this report, MediaNomics examined all 29 Fed stories that aired on ABC’s World News Tonight, CBS Evening News and NBC Nightly News after the conclusion of each FOMC meeting, the day when the Fed’s decision on interest rates was announced. Nine such meetings were held over the past 12 months — six ended with an increase in rates while three (including a two-day meeting on June 27 and 28) concluded with no change in the Fed funds rate.

The first rate hike came exactly one year ago, on June 30, 1999. CBS’s Anthony Mason used an analyst to explain the Fed committee’s reasoning: "Tight job markets lead to wage inflation," Mason flatly stated, "and Prudential’s Larry Wachtel says the job market hasn’t been this tight in a generation." Wachtel then told Mason: "Better to take the pre-emptive action now than let the thing get out of the box and then take a very vicious action later."

The second hike came on August 24, 1999, and in his report ABC’s Bill Redeker quoted a fund manager who also sought to explain, not critique, the rate increase. Marilyn Cohen, a bond fund manager, told Redeker "the economy is still that perfect Goldilocks scenario: not too hot, because the Fed is making sure of that, [and] not too cold."

That same night, CBS’s Mason offered the only report that directly quoted experts critical of the Fed’s policy. "For all the Fed’s fears," Mason reported, "economist Larry Chimerine [says] prices are barely budging. Sure Americans are still on a shopping spree, but there are too many stores competing for your business." Mason also quoted economist Roseanne Cahn, who told him that "‘Grow’ is not a four-letter word. It’s just fine to grow rapidly, more rapidly than the Fed thinks, without inflation picking up."

ABC and NBC failed to offer their viewers a similarly contrarian story. Typically, network correspondents appeared to simply accept the Fed’s reasoning and try to explain it to their viewers. "How can [a rate increase] possibly help the economy," NBC’s Mike Jensen asked rhetorically on May 16, after a half-point increase, the largest in five years. "By slowing it down so it doesn’t overheat, set off a wave of inflation. With higher rates, consumers are less likely to go on a buying binge, because it costs more to borrow."

After its most recent meeting, at which the Fed chose to leave rates unchanged, ABC’s Kevin Newman commented on the June 28 edition of World News Tonight that "[The Fed] said the economy seemed to be cooling off to an acceptable level, even though there are still some signs, it says, of inflation."

Thus, apart from the single story reported by Mason last August, network evening news viewers might have assumed that there had been no real debate about the merits of the Fed’s actions. But there’s a growing view among economists that the gains in productivity that the U.S. has enjoyed throughout the 1980s and 1990s have greatly improved the economy’s ability to sustain long-term growth. Economist Lawrence Kudlow, in a Washington Times op-ed written after the last rate hike in mid-May, critiqued the committee’s thinking. "The Fed," Kudlow wrote, "is wedded to the Phillips Curve, a theory asserting that declining unemployment generates rising inflation."

"This model has completely broken down in recent years (for the umpteenth time since World War II)," continued Kudlow, "as a combination of productivity-enhancing technology breakthroughs, a lower capital gains tax-rate (promoting record capital investment) and low inflation (to hold down long-term interest rates) has expanded the economy’s long-term potential to grow."

The National Center for Policy Analysis’s Bruce Bartlett questioned whether the Fed even has the right tools to protect the economy. "There is little evidence that raising the Fed funds rate does anything to forestall inflation," he wrote on May 29. "In fact, economist Richard Salsman believes it actually will make inflation worse. He notes that historically, falling inflation has been associated with a falling Fed funds rate, whereas rising inflation is associated with a rising Fed funds rate."

"The Fed is flying without a compass," Bartlett asserted. "It is raising interest rates and destroying trillions of dollars of stock market wealth without having any clear idea of what it is doing or why. Consequently, the Fed has no way of knowing when or if it has gone too far until something in the economy snaps under the pressure and it is forced to react. With luck, the ‘crisis’ that finally forces the Fed to back off from its anti-inflation jihad won’t be too serious." 

In other words, a robust debate is taking place among economists, and the consequences are nothing less than the longevity of our current prosperity. The networks should start giving their viewers the full story.

— Rich Noyes