[Congressional Record Volume 143, Number 62 (Tuesday, May 13, 1997)]
[House]
[Pages H2494-H2495]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   FEDERAL RESERVE AND INTEREST RATES

  The SPEAKER pro tempore (Mr. Sununu). Under the Speaker's announced 
policy of January 21, 1997, the gentleman from New Jersey [Mr. Saxton] 
is recognized during morning hour debates for 5 minutes.
  Mr. SAXTON. Mr. Speaker, few issues are as important as those 
policies of the Federal Reserve that affect American money. Policies of 
the Federal Reserve can determine whether

[[Page H2495]]

there is high inflation or low inflation. Those policies can determine 
as well whether we can influence interest rates both in the short as 
well as in the long term.
  Sound monetary policies can create a framework favorable to economic 
growth, while policies that permit inflation to take place undermine 
economic growth. We are all concerned about job creation. We are all 
concerned about good wages. And it is primary to the policies that come 
out of the Federal Reserve as to whether or not those issues are able 
to take place.
  Over the last few months I have released a number of studies on 
Federal Reserve policy in my capacity as chairman of the Joint Economic 
Committee. We call the committee the JEC. These studies explain the 
reasons why inflation or the lack of it, known as price stability, 
should remain as the central focus of Federal Reserve policy. According 
to this research, the Federal Reserve's anti-inflation policy has 
worked well over the last few years. However, more recently, I have had 
some disagreements with the Fed about price stability and how it should 
be implemented.
  Is inflation taking place? It does not look so. But our JEC research 
suggests that, if there is inflation, it should be visible in real 
terms, in price measures such as the Consumer Price Index, which 
indicate today no inflation or no appreciable inflation. It should also 
be evident in prices of raw materials like commodity prices. It should 
also be evident in the value of the dollar as opposed to the German 
mark or the Japanese yen. It does not seem like there is any inflation 
there. And it should be evident in bond yields.
  Now, according to these price measures, there is no real evidence of 
inflation to justify Federal Reserve increases in interest rates. Yet 
the Federal Reserve seems to view economic growth itself as potentially 
inflationary. Now, imagine that for a minute, economic growth as being 
bad because economic growth means inflation. I do not think that is 
true.
  Based on our research, in fact, the JEC has done, I have opposed the 
increase in interest rates announced by the Federal Open Market 
Committee of the Fed on March 25. According to price measures used by 
the Joint Economic Committee, there is no indication of inflation 
justifying this increase in interest rates. For the same reason, I do 
not think the evidence would support an increase in interest rates at 
the FOMC next Tuesday.
  In connection with this research, I have also suggested that more 
openness is needed with Fed policy. Why should we as members of the 
public be trying to guess about what they are going to do? It creates 
instability. It creates guessing. People should not have to make 
investments based on their best guess. They should do so for good sound 
reasons.
  Having to guess about Fed policy is not good for our economy.
  In conclusion, there is no substantial evidence of inflation to 
support Federal Reserve action to raise interest rates. I am extremely 
supportive of the objective of price stability. Nobody wants inflation. 
But I do not agree with those at the Fed who tend to view economic 
growth itself, economic growth itself as potentially inflationary.
  Furthermore, Federal Reserve efforts to be more open and transparent 
should be encouraged and continued.

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