[Congressional Record Volume 140, Number 39 (Wednesday, April 13, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: April 13, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
          THE CONSUMER PRICE INDEX REFUTES FED RESERVE ACTIONS

  Mr. DORGAN. Mr. President, I wanted to take the floor briefly today 
to comment on some news that arrived this morning to the American 
people about the Consumer Price Index.
  The Department of Labor announced today that the Consumer Price Index 
for the most recent month rose to 0.3 percent. Today's report followed 
yesterday's report about the Producer Price Index which rose just 0.2 
percent. The combination of these reports on prices suggests that we 
have only modest inflation in this country. We do not have a classic 
inflation problem; and we do not have inflation running out of control. 
Inflation seems to be well in hand at a very modest level.
  I point this out only because we have recently seen action in this 
country by the Federal Reserve Board that has prompted hardly a whisper 
or a whimper of objection. This is despite the fact that the Federal 
Reserve Board--a behemoth organization, which is accountable to no 
one--takes action that has a significant impact on the economic 
fortunes of this country.
  I would like to use a chart to demonstrate what has happened to 
inflation. We have had some inflation problems in this country, but 
this chart demonstrates we have a relatively low rate of inflation 
today. It has come down each of the last 4 years and, according to this 
month's and today's announcement by the Department of Labor, remains at 
a very modest rate. One would not believe that if one were watching the 
behavior of the Federal Reserve in recent weeks.
  We have had twin economic goals in our country for a long, long time: 
full employment and stable prices. Both are important, and both are 
goals that almost all of us share. The Federal Reserve Board, however, 
seems to have its priority with respect to those goals on the side of 
stable prices. In other words, they are taking actions that have much 
more impact on the price side than on the employment side.
  Let me describe what I mean by that. We have inflation fairly well 
under control, with inflation decreasing each year of the past 4 years. 
Recent reports show that inflation is still modest in this country and 
is not growing. Despite that, the Federal Reserve Board has voted twice 
to increase interest rates in order to slow down the economy.
  Someone for whom I have great respect, Alan Murray, recently wrote a 
Wall Street Journal column essentially supporting the Federal Reserve 
Board, saying the Federal Reserve Board should have taken this action, 
not with respect to inflation rates, but because the economy was moving 
too fast.
  I do not share that view. The fact is, we have just come out of a 
very long and very troublesome recession. Our economy is not nearly up 
to cruising speed. We have not nearly fully employed our American work 
force. Millions of Americans are without work in this country. We are 
not fully exercising the capacity in our plants and equipment in 
America. Yet, we have a Federal Reserve Board operating behind closed 
doors, in secret, making monetary policy decisions to say let us slow 
down the American economy.
  This is not new. The Federal Reserve Board was created earlier in 
this century, and was promised not to become a central bank that is 
accountable to no one, but in fact that is exactly what it has always 
been.
  What I want to complain about today is not just the Fed's actions. In 
my judgment, the Fed has caused economic injury to our country by 
increasing interest rates on two occasions at a time when we should 
have continued the move towards more economic expansion. This would not 
risk more inflation because we have plenty of excess capacity in the 
workplace. But the Fed did this by themselves with no public debate, no 
discussion about whether it was a wise or unwise thing. They did it 
because it represents their constituency.
  Let me describe what I mean. The Federal Reserve Board makes 
decisions, as I said, in a closed room. At least in the Open Market 
Committee you have people in that room voting on monetary policy that 
affects every American and affects the economy of this country. Some of 
those people who vote in that room, in the Open Market Committee, have 
never been appointed or confirmed by anybody in public office. The Open 
Market Committee contains, on a rotating basis, a number of regional 
Federal Reserve bank presidents. These people are largely selected by 
the big bankers in their region. They are then sent here to cast votes 
on what they think our monetary policy ought to be.
  It should surprise no one that their votes reflect a bias on the side 
of saying let us control inflation versus worrying about employment, 
because the big money center banks, as a matter of fact, are much more 
disadvantaged by a higher rate of inflation than they are by a lower 
rate of employment.
  When this town is obsessed by accountability, and all kinds of public 
interest groups around here are asking that everybody be accountable 
for everything, why is it that we have an institution like the Federal 
Reserve Board which, in the face of this country's economic challenges, 
takes action to increase interest rates twice at precisely the wrong 
time. Why is not anybody asking for accountability by the Federal 
Reserve Board?
  Why do people who make up to $200,000 or more a year as regional 
Federal Reserve bank presidents come to town and vote on public policy 
that affects every American's life, and yet we have no accountability 
for those actions? The votes are taken in secret, behind closed doors, 
cast in some cases by people who have never been appointed by the 
President or confirmed by Congress.
  I raise this question today in the context of suggesting that now is 
the time for us to move some legislation that I and my colleague, 
Senator Sarbanes, and my colleague on the House side, Congressman 
Hamilton, and some others have introduced, S. 219, the Monetary Policy 
Reform Act. It would remove the regional Fed presidents from the Open 
Market Committee and make the seven members of the Board of Governors 
responsible solely for monetary policy.
  As a matter of fact, I have suggested more reforms for the Fed. I 
think what we ought to do for the Federal Reserve Board is not to give 
monetary policy to politicians, but to open the door and shine some 
light on the Fed. Nothing, in my judgment, would better serve the 
country's interests than to blind the Federal Reserve Board with a 
little sunshine so the American people could see how monetary policy is 
made and on whose behalf it is made.
  In the last century we used to debate monetary policy from bars to 
barber shops. The question of interest rate policy was of immense 
concern to the American people, and it used to be part of political 
debates in this country. It is not any longer because there is this 
mystery shrouding monetary policy. We do not have much to say about it. 
It is conducted in secret down at the Federal Reserve Board. We do not 
quite understand it.
  But I know enough about it to understand that monetary policy by the 
Fed that creates interest rate increases at a time like this, is more 
designed to serve the economic interests and the financial interests of 
the money center banks than it is to serve the economic interests of a 
family that needs a job in this country. That is why we need some 
reforms at the Federal Reserve Board.
  It is a long and tired and, in many ways, a tortured debate we have 
about the Federal Reserve Board, because the minute we raise the 
question someone says, ``Oh, so you want politicians to take over 
interest rate policy?''
  No, that is not what I want. Nor do I want monetary policy, including 
interest rate policy in this country, to be the sole province of people 
who do their business behind closed doors and largely serve the 
economic interests and the financial interests of America's money 
center banks. We deserve better than that. We deserve more than that.
  There is an opening at the Federal Reserve Board on the Board of 
Governors. It is safe to say my Uncle Joe is not going to be appointed. 
Oh, my Uncle Joe, I think, would probably be a pretty good choice. He 
knows something about business. He has worked all of his life. But the 
fact is the Fed is populated by a small congregation of people who call 
themselves bankers, economists, and others who think they know 
something about the economy of this country. And maybe they do, 
although I would observe that just prior to going into the last 
recession in 1990, a survey of the top forty economists in America 
showed that 35 of 40 of them surveyed predicted the next 12 months 
would be 12 months of steady economic growth. Of course in the next 12 
months we experienced the beginning of the recession. Thirty-five of 40 
economists did not predict the recession. One would wonder, then, 
whether my Uncle Joe might not contribute something to the profession.
  I hope the American people, that the U.S. Senate, and others, will 
start asking significant and serious questions about who is making 
monetary policy and for whose benefit is it made.
  We share the same goal: stable prices and full employment. But why is 
it, at a time when inflation is very, very low, and still modest--and I 
see no danger signs in the intermediate term --why is it the Federal 
Reserve Board behaves like a doctor who would now say to a patient, 
well, I see nothing wrong with you; I see no evidence of a problem, but 
I am going to prescribe some antibiotics just in case you run into a 
problem in the future. That would be irresponsible for a doctor, as 
were the two interest rate increases by the Fed.
  I hope that finally we begin debating as a result of what the Fed is 
now doing, out of sync with what I think it should be doing at this 
time in our country, the question of what role should the Fed play in 
our future. How should the Federal Reserve Board be made accountable to 
the collection of interests of all of the American people, not just 
some of the money center banks that it seems all too often to serve.
  Am I too harsh with the Federal Reserve Board? Well, maybe; but I 
think not. The question of monetary policy is too important for the 
American people not to have a voice. I think that we now need to 
rethink fundamental policy about how and where we conduct monetary 
policy and what role the American people can and should play in it.
  Mr. President, I yield the floor. I make a point of order that a 
quorum is not present.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. MITCHELL. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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