[Congressional Record Volume 140, Number 63 (Thursday, May 19, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: May 19, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                       THE INTEREST RATE SCANDAL

  Mr. DeCONCINI. Mr. President, just 2 weeks ago I took the floor to 
voice my concern about the string of decisions by the Federal Reserve 
to raise interest rates. Here we go again. The Federal Reserve's 
decision yesterday to raise interest rates by another half a point, 
after having just raised them of of a percent on April 18, doesn't make 
sense. If the purpose of raising interest rates is to slow business 
expansion to prevent spiraling inflation, one has to wonder what 
credible evidence the FED used to make its decision.
  I see no frightening expansion of the economy and neither does the 
ordinary consumer. Inflation performance is the best it has been in 30 
years. The economy is expanding at a very modest rate of 2.6 percent 
according to the latest statistics. The increases in interest rates 
over previous months have already had a negative impact on a recovering 
but skittish economy. Retail sales were down in April. Housing starts 
fell by 2\1/2\ percent. The producer price index is down. Are these 
signs of a inflationary economy? The answer is quite clearly no. Are 
there any signs whatsoever that the economy is growing at an 
unsustainable rapid rate? Again, the answer is clearly ``no.''
  What these economic statistics show is that recent FED actions have 
already frightened consumers. They are once again uncertain about the 
future strength of the economy. Unemployment and lack of job 
opportunities are once again creeping into their consciences and 
tempering their optimism. They are once again concerned about the 
prospects for retaining their jobs or finding new ones. Because of 
these concerns, they are increasingly wary of their futures. They are 
not buying at the same rate, and they are putting off long-term 
investments such as houses and cars. And yesterday's actions will only 
heighten their concerns. This seemingly inexplicable action by the FED 
conjures up the public's stereotypical image of decisionmakers at the 
FED as academics in ivory towers or green eye-shade bureaucrats who are 
totally out of touch with the real world.
  While the administration now appears to have tempered its views on 
rising interest rates, Secretary Bentsen did at least express his 
concerns to Alan Greenspan about these steady, incremental bumps in 
rates telling him that he ``didn't want to get into a Chinese water 
torture on interest rates.'' I guess the administration has concluded 
that it is better to take the bitter pill of rising interest rates now 
rather than to swallow them closer to the election. I, for one, 
disagree strongly with that view.
  I am convinced that these rising interest rates will deter economic 
growth just as it will undermine consumer confidence. Nothing, in my 
view, could have a more devastating effect on Democratic success at the 
polls this November than a shrinking economy, and I fear that is the 
direction we are heading. The President had it right during his 
election campaign: ``It's the economy, stupid.'' The bottom line in the 
election results this fall will still be: ``It's the economy, stupid.'' 
If we don't get it, we will pay a high price for losing our focus.

  Our current monetary policy is a policy gone amok. It is made by the 
Federal Reserve's Board of Governors which is totally unaccountable for 
its actions. The policy makes no sense to this Senator and to a vast 
majority of the American public. It will choke off economic growth. It 
will make capital more expensive and more scarce. It will deter 
business investment and expansion. It will cause uncertainty in the 
financial markets and will surely shake consumer confidence. But the 
FED is free to make monetary policy without ever having to explain why 
or how it came to its decisions. Yet the decisions of the FED have an 
immediate impact on the lives of millions of Americans. I think it is 
just plain wrong that the FED remains totally unaccountable for its 
actions. At the very least, I think the FED ought to make public the 
reasons for its decisions. And I think there should be some 
congressional oversight. Policymaking which is accountable to no one 
can be dangerous indeed. What is wrong with having a sensible 
discussion on monetary policy just as we have on fiscal policy? What's 
wrong with requiring the Chairman of the FED to appear at a limited 
number of congressional hearings to respond to lawmakers' concerns? 
What's wrong with subjecting the Federal Reserve to oversight? By 
oversight, I do not mean verbally beating the FED into submission to 
congressional wishes. No one wants Congress to make monetary policy. We 
know that would be a disaster of the first order. What I want, and what 
I think the American people deserve, is an intelligent discussion and 
explanation of the monetary policies which affect them so personally. I 
do not concur with the current FED policy. In fact, I vehemently 
disagree. But at the very least, I think the American public deserves a 
credible explanation for those policies.

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