[Congressional Record Volume 140, Number 54 (Friday, May 6, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: May 6, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                 INTEREST RATES AND THE FEDERAL RESERVE

  Mr. DeCONCINI. Mr. President, on another subject matter, I rise today 
to voice some concern over the string of recent decisions by the 
Federal Reserve to raise interest rates an amazing three times in a 
very short 10-week period of time. Many observers believe that the Fed 
will raise the rates again, perhaps as soon as the middle of this 
month. Financial markets and institutions were quick in their negative 
response to the most recent one-quarter of 1 percent increase on April 
18, as bond prices tumbled and the Dow fell 41 points in 1 day.
  Some of that has been recouped, but there is certainly some feeling 
of concern. Proponents of the Fed policy argue that the increases are 
necessary to stave off inflation which may accompany our growing 
economy. However, I believe that adopting this policy, at this time, is 
premature and unprovoked. Although this Nation's economy is 
experiencing sustained growth, the warning signs of inflation have 
remained at bay. Growth figures released last week by the Department of 
Commerce indicate that the economy grew at a rate of 2.6 percent for 
the first quarter. While this growth is less than previous predictions, 
which ranged from 3 to 4 percent, the 2.6 percent figure represents a 
steady, job-producing level of economic expansion.
  The Wall Street Journal said recently the first quarter figures bode 
well for the remainder of the year. According to the Journal, the 
economy will continue to grow at a moderate rate, around the 3 percent 
range. More importantly, the forecast indicates that inflation will 
remain under control.
  Laura Tyson, the head of President Clinton's Council on Economic 
Advisers stated that the report ``* * * should calm fears that the 
economy is growing at an unsustainably rapid rate, or fears that 
inflation is about to spike upward.''
  Clearly, the outlook is a positive one which should be greeted with 
enthusiasm by an American public which has been subjected to years of 
economic stagnation while Washington has stood idly by. It is this 
Senator's hope that the recovery will be allowed to run its course 
unencumbered by another increase later this month of interest rates by 
the Federal Reserve.
  It is the potential that in their zest to avoid inflation the Federal 
Reserve will prematurely put the brakes on the recovery, which causes 
me to speak out today. The need to limit inflation is a legitimate one. 
However, we should not embark on a policy of preempting inflation when 
there is no indication that it is a problem.
  When indicators predict inflation becoming problematic, then clearly 
raising interest rates is appropriate. Raising the rates prior to that 
time, as recent experience shows us, creates unwarranted uncertainty in 
the financial markets and shakes consumer confidence. The impact of the 
recent increases has had a very real and, in my opinion, detrimental 
effect not only on Wall Street, but also on Main Street.
  For example, a young couple hoping to buy a new home this spring is 
today facing financial obstacles that did not exist only a short time 
ago. In a little over a month, the interest rates on the average 30-
year, fixed-rate loan, has climbed a full percentage point to 8.5 
percent--an increase of 1.75 percent since the rate reached a 25-year 
low of 6.74 percent last October. Virtually overnight, many have been 
priced out of the housing market and out of the American dream.
  This simple example illustrates another very important concern about 
the Federal Reserve: Accountability to the American public.
  The decisions of the Fed, perhaps more so than many decisions we make 
in this Chamber, have an immediate, direct, and unavoidable effect on 
the lives of millions of Americans. However, unlike Members of 
Congress, the Fed is not accountable to any of those Americans. 
Regardless of the policies adopted by the Federal Reserve, neither the 
Congress, nor the Executive branch have any recourse whatsoever. The 
Federal Reserve is the most autonomous, and therefore in my judgment, 
the most powerful of all agencies. This, despite the fact that our form 
of Government is predicated on accountability.
  The issue of accountability has been raised in Congress before, and I 
am aware of at least two pieces of legislation which have been 
introduced in this Congress as well. I hope that this body will give 
those measures the thorough consideration that they deserve. The simple 
fact is, the American public has a right to expect the Federal Reserve 
to be accountable for the decisions they make.
  At present, they are not. At a minimum, enhanced disclosure or 
congressional oversight would ensure the citizens of this Nation that 
policies which affect them directly are well thought out. It is clear 
that this issue is one which should be addressed, and I welcome the 
opportunity, and hope and encourage the committees of jurisdiction to 
take that opportunity now.
  However, the more immediate concern which must be addressed is 
another possible increase later this month of the interest rates set by 
the Federal Reserve. I sincerely hope that the Federal Reserve will 
weigh the potential damage another increase will have on the recovery. 
This Nation is at long last experiencing growth which will be 
endangered if further increases are sought. We should reconsider the 
current policy and give the expansion a chance to run its course. After 
enduring a lengthy recession, the American people are entitled to at 
least that much.
  President Clinton and this administration have taken very positive 
steps to see that there is economic growth. The economic package that 
passed this body and the House of Representatives resulted--for the 
first time in my career in this body--in the growth of the deficit 
going down, in actual cuts in Government spending, and yes, a modest 
tax increase of 1 percent on only the wealthiest Americans. These 
positive steps have produced economic assurance and growth in this 
country.
  I hope that we will keep a steady course and that the Federal Reserve 
will not muck it up.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.

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