US rate dissenter sticks to his guns

WASHINGTON - Federal Reserve governor Mark Olson once said that Fed chairman Alan Greenspan wins consensus on interest-rate moves "through the quality of his leadership and the depth of his analysis".

Yesterday, Greenspan failed to sway Olson for the first time since the former Minnesota bank president joined the Fed in 2001.

Olson, 62, cast the lone dissenting vote, out of 10 Fed policymakers, arguing to keep the main US rate unchanged at 3.5 per cent instead of raising it to 3.75 per cent.

Greenspan, 79, and other members of the Federal Open Market Committee decided to lift the rate yesterday because of the threat of inflation, even with the "widespread devastation" caused by Hurricane Katrina.

Olson may not have been the only opponent of an increase, just the strongest, said Alan Blinder, Fed vice-chairman from 1994 to 1996.

"The tradition on the Fed is, you only vote against the chairman if you feel very strongly that it's the wrong decision," said Blinder, now an economist at Princeton University in New Jersey.

Before yesterday, the last time a member of the committee dissented was in June 2003, when Robert Parry, then-president of the Federal Reserve Bank of San Francisco, voted for a half-point cut in the benchmark rate, breaking with the majority, which decided on a quarter-point cut.

About 20 per cent of economists surveyed by Bloomberg News predicted the Fed would leave the overnight bank lending rate at 3.5 per cent instead of raising it a quarter percentage point. Some members of Congress called on the Fed to leave the rate unchanged in light of the storm's destruction.

But the Fed raised its main lending rate for the 11th straight time since June last year and said it would probably continue raising it at a "measured" pace. The Fed's rate is the highest since August 2001, a month before the September 11 terrorist attacks.

"Mark, above all, is honest," said Bill Frenzel, a former member of Congress. "If he felt the committee was going in a direction that was not good for the economy, he would not be afraid to cast a vote in opposition to his colleagues."

- BLOOMBERG