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.
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
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
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
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.