[Congressional Record Volume 140, Number 33 (Tuesday, March 22, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 22, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                   MY ADVICE TO THE PRIVILEGED ORDER

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Texas [Mr. Gonzalez] is recognized for 5 minutes.
  Mr. GONZALEZ. Madam Speaker, I must say that I am not happy with the 
path the Federal Reserve has chosen for the U.S. economy. The Federal 
Reserve's policy of raising interest rates to fight an inflation no one 
can see is, according to Fed statements, based on a number of factors 
other than recent past experience with inflation. The Fed even admits 
that the factors it looks at are faulty. In fact, a continuation of Fed 
doses of higher interest rates and warning about the coming inflation 
can cause a deflation in bond prices and then a rapid rise in interest 
rates. That translates into a rapid fall in equities prices and real 
trouble for the small investor who has entrusted savings to stock 
mutual funds. Many of these mutual fund investors are first-time 
investors who may not know the risk involved in an investment reliant 
on the stock market's health. Should this scenario occur, it will be 
too late for the Fed to reverse its policies and hypocritical for them 
to brag about how well they can handle a crash that they have 
precipitated.
  In this week's edition of Barron's magazine, Edward Yardeni, chief 
economist and managing director at CJ Lawrence Deutsche Bank 
Securities, is especially critical of the Fed's recent pronouncements. 
He writes, ``A month ago Fed Chairman Alan Greenspan seemed to say that 
all the recent good news about inflation should be ignored.'' He also 
quotes Federal Reserve Governor Lawrence Lindsey who said, ``We (the 
Fed) look at a whole raft of variables--we ignore nothing and focus on 
nothing.''
  Thankfully, that kind of nonadvice is incorrect. For example, former 
Fed Governor Wayne Angell put great importance on the price of gold as 
an indicator of inflation and Chairman Greenspan has noted that it is a 
variable which helps guide the Fed in determining when the country 
should expect inflation.
  I wish these gentlemen would familiarize themselves with the Federal 
Reserve's own research on this subject. In the March/April 1994 issue 
of Economic Perspectives, a Federal Reserve Bank of Chicago 
publication, Senior Economist Robert Laurent debunks the use of gold 
prices as an indicator of inflation. His research shows that ``gold is 
not likely to serve as a useful early indicator of changes in 
inflation.''
  My colleagues, you do not have to be an expert to understand that the 
price of gold is not a good forecaster of inflation nor do you have to 
buy the Fed claim that it is raising interest rates because there are 
signs of inflation. It is just plain balderdash. I will submit for the 
record the price of a troy ounce of gold for the period 1974 to 1993 
compared to the Consumer Price Index (CPI), an index used to measure 
inflation. The price of gold varies all over the graph while the CPI 
does not. The Fed might as well read tea leaves as a substitute for 
using the price of gold as an indicator to raise interest rates.
  The Federal Reserve is clearly in need of a reality check. Don't they 
know that the average rate of inflation is the lowest since the 1960s? 
I will submit for the record a graph of the rate of change of the CPI 
from 1957 to the present which clearly shows the historical record of 
inflation. It is imperative that the Fed focus its efforts on keeping 
the present recovery going, rather than chasing inflation apparitions
  As you, my colleagues, well know, the job market is still very bad. 
The unemployment rate did not even peak until 13 months after the end 
of the 1990-1991 recession, the longest lag in this half century, and 
most of the workers currently working find their wages to be declining. 
Weekly gross wages, adjusted for inflation, for 80 percent of the 
Nation's workers--workers who do not hold the highest paying jobs--have 
been falling. These people are already suffering and do not need any 
preemptive strikes from the Federal Reserve which have a negative 
impact on their standard of living.
  The decision-makers at the Fed should pull back the curtains and take 
a long, hard look at the economic landscape. It is rocky out there. 
Rather than take its lead from Fed Governor Lindsey and the gold bugs, 
the Fed should focus instead on using measures that truly indicate the 
country's condition. It should not adopt policies which could possibly 
foster a stock market decline just because of a hubris that the Fed can 
step in at the last minute and shore up the market, just as it did in 
1987. This is not the way to make policy for our nation's citizens.
  I commend Federal Reserve Chairman Alan Greenspan and the other 
members of the Federal Open Market Committee (FOMC) for promptly 
announcing the Fed's decision today to raise interest rates. For months 
I have been calling for such prompt disclosure to prevent wild 
speculation and unnecessary leaks that arise out of unannounced FOMC 
policy changes.
  Today all market participants received the information at the same 
time. All those who believe that financial markets work best with more 
information will agree that this is an appropriate way to change 
policy. Next, I want the FOMC to agree to a timely release of the 
complete minutes of each of its eight annual meetings so that the 
American public can have a full accounting of the decisions of the 
individuals who run this powerful decision-making committee and whose 
decisions impact inflation, employment, interest rates and the 
international value of our currency. This can best be accomplished by 
supporting my bill, H.R. 28, the ``Federal Reserve System 
Accountability Act of 1993.'' H.R. 28 requires full accountability at 
the Fed, a requirement of all government bureaucracies operating in a 
democracy.

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