[Congressional Record Volume 140, Number 10 (Monday, February 7, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: February 7, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
               GOOD NEWS AND BAD NEWS ON FEDERAL RESERVE

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Texas [Mr. Gonzalez] is recognized for 5 minutes.
  Mr. GONZALEZ. Mr. Speaker, I have good news and bad news. The good 
news is that last Friday the Federal Reserve actually announced its 
decision to raise interest rates. Normally, the Fed requires the public 
to hold its breath--never mind if it turns blue--and wait 5 or 6 weeks 
before the central bank releases its monetary policy decisions. The bad 
news is that the Fed decided to raise interest rates to choke off any 
unwanted growth in the economy.
  As I have suggested in the past, prompt disclosure lets all market 
participants know what the Fed is doing. It should be vastly preferred 
to the previous method of releasing the directive 5 or 6 weeks after 
the Fed has made its monetary decision. Since the Fed makes the rules, 
it apparently feels it has the right to break the rules. While the 
public normally is kept in the dark about the Fed's decisions, the Fed 
quietly leaks its policy decisions to a favored few--usually selected, 
friendly reporters--in order to guarantee favorable press coverage. 
These leaks only end up creating an unequal playing field for market 
participants--and worst of all, they give rise to rumor-mongers and Fed 
tea-leaves readers
  While I applaud the Fed for its prompt disclosure last week, I regret 
that the Federal Open Market Committee, the Fed's policymaking arm, the 
guys that determine your standard of living, the interest rates, 
employment and unemployment, all closeted in a secret room, not a one 
of them accountable to anybody except the banks they come from, waited 
until the bond market was in disarray before announcing its intentions.
  On Thursday, February 3, 1994, they let the Federal funds rate creep 
up without telling anyone what they were doing. Finally on Friday they 
found their voice for the first time in more than 80 years. Had they 
announced their decision on Thursday the money market's movement to the 
new target would have been more orderly.
  I have introduced legislation which calls for prompt disclosure of 
FOMC decisions. I urge the Congress to pass this legislation to make 
sure the Fed's newfound openness becomes a permanent fixture. Otherwise 
the monks at the Fed, as is their wont, will recede behind their ivory 
gates and the public will never know what they are up to.

                              {time}  1220

  I recently released a committee staff report entitled: ``The Federal 
Reserve's 17-Year Secret.'' The report concludes that the Fed has no 
grounds for keeping information from its eight annual FOMC meetings 
secret. The reality is that by keeping them secret, the Fed fancies 
itself as appearing all-powerful and all-knowing. Like the Wizard of 
Oz, the Fed tries to keep the curtains closed--to do otherwise would be 
to reveal that the people pulling the monetary policy levers are mere 
mortals after all.
  As to the decision to raise interest rates, I am in complete 
disagreement. Clubbing the economy in the knees for some ill-conceived 
dream of zero inflation is a poor way to produce a robust recovery.
  Although the interest rate change imposed by the Fed was small, the 
real danger is that this is a turning point in interest rates. Our 
economic recovery is already weak and joblessness remains high--yet 
here is the Fed giving it a whack in the knees, just to be sure 
everyone continues to play hurt and fearful.
  To put it another way, when interest rates, adjusted for inflation, 
rise, the values of stocks, housing, and other assets fall. This is not 
good for an economic recovery that is nascent at best. The Fed's action 
last week could put the economy right back in intensive care; it 
certainly imposes fear and pain.
  They are transforming the small, fragile golden balloon of growth 
into a lead balloon. Their dream can turn into a nightmare for the 
American public. Slow money growth will drag down the economy--not a 
wise or compassionate move when millions of Americans are in dire 
straits and nearly 7 percent of the labor force is unemployed.
  Federal Reserve Chairman Alan Greenspan recently told the Joint 
Economic Committee that the inflation rate was 2 percent or less last 
year and the price indexes that measure inflation are inaccurate. 
Still, the would-be alchemists at the Fed chose to dampen the recovery 
to fulfill their dream of zero inflation.
  As I have said time and time again, in and out of the committee, the 
only place you have zero inflation is the graveyard.

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