Fed to Support Anti-Inflation Resolution

The Federal Reserve Board, led by Chairman Alan Greenspan, has agreed to support a far-reaching congressional resolution that directs the nation’s central bank to “eliminate” inflation within five years, according to government sources.

Passage of the resolution would provide additional political backing for a further attack on inflation, which a majority of Fed policy-makers already favor. Its introduction, and Greenspan’s backing could lead to a sharp political debate involving the Bush Administration over national economic goals and how to achieve them.

The joint resolution, introduced by Rep. Stephen L. Neal (D-N.C.), argues in its preamble that eliminating inflation eventually will provide a host of benefits to the U.S. economy, including low interest rates, high levels of employment, strong economic growth and less risk of a recession.

But the resolution likely will be disputed by range of liberal and conservative critics at hearings tentatively scheduled for next month.

Some of the critics fear that pursuit of such a goal would impose a higher social cost on the country than the eventual benefits would be worth. They argue that it would leave the Fed no choice but to use higher interest rates, slower growth and rising unemployment to squeeze inflation out of the economy.

Historically, substantial reductions in U.S. inflation have occurred only after costly recessions.