Alan Greenspan, as chairman of the Federal Reserve, is typically thought of as the voice on monetary policy. That there could be dissension among Federal Reserve governors on monetary policy matters is not generally broadcast, the other governors deferring to Mr. Greenspan. However, Laurence H. Meyer, a Fed governor with a reputation of being extremely rigid when it comes top fighting inflation, has been engaged in a debate with Alan Greenspan over monetary policy and its relation to economic growth and inflation. Their dialogue provides insight into the issues with which the Fed is wrestling as it develops a monetary policy to deal with the economic slowdown.

Mr. Meyer believes in rule-based policies that assume predictable relationships between inflation, unemployment and economic growth. Strong economic growth inevitably produces inflationary pressure and historical relationships between growth and inflation should determine appropriate rules for monetary action. Mr. Greenspan, on the other hand, believes that the economy's capacity for noninflationary growth has been permanently changed by productivity increases. Mr. Greenspan prefers a less rigid approach to policy formulation.

The experience of the 1990s, where strong growth and low unemployment generated little inflation, would seem to provide evidence favoring Mr. Greenspan's position; however, Mr. Meyer believes that it is too early in the economic cycle to call Mr. Greenspan the winner. Meyer argues that the surge in productivity had a temporary disinflationary effect, because workers did not seek higher wages in line with improved productivity: business firms, because of competitive pressures, passed the lower costs on in the form of lowered prices. The effect was to reduce the level of unemployment at which economic growth ignites inflation. But this effect is temporary. Once productivity growth stabilizes, disinflationary effects will dissipate, and an economic slowdown might put pressure on prices. Mr. Meyer believes that the relationship between the current productivity gains and inflation need to be tested over an economic decline.

Mr. Meyer has supported the Fed's decision to lower interest rates and both he and Mr. Greenspan have signaled that they might support one or more rate cuts. Both also agree that the present slowdown is the result of rising energy prices and jittery financial markets, rather than a failure of Federal Reserve policy.

(Updated July 1, 2001)