[Congressional Record Volume 144, Number 120 (Friday, September 11, 1998)]
[Senate]
[Pages S10258-S10259]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       THE FEDERAL RESERVE BOARD

  Mr. DORGAN. Mr. President, let briefly turn to one additional 
subject. That is the question of interest rates and the Federal Reserve 
Board. I want to talk about this because it also affects farmers--not 
just farmers, but all producers and all Americans. There is a lot of 
discussion these days about what is happening to the economy in our 
country. We have plenty of challenges. But it is also hard to miss some 
good news. The unemployment rate has gone way down. And the Federal 
Reserve Board, as most of us will recall, said: Now be careful, because 
if the unemployment rate ever falls below 6 percent there is a natural 
rate here below which we will get new waves of inflation; go below 6 
percent, the Fed said, and we are going to have inflation problems.
  Of course, the Fed was dead wrong. We have had unemployment below 6 
percent for 4 years now. Inflation has not gone up, it has gone down. 
But this is good news for the economy. The unemployment rate continues 
to be down. The Consumer Price Index has gone way down too. The core 
rate with respect to the CPI is 2.2 for the last 12 months ending in 
July.
  Finally, the real Federal Funds Rate, that is the short-term interest 
rate, adjusted for inflation, that the Federal Reserve Board sets, is 
3.9 percent, the highest it's been in nine years. When inflation is way 
down here and the Federal Funds Rate, the real interest rate, is up 
here, you ask the question: Why? Let me see if I can answer that 
question and give just a bit of advice to the Federal Reserve Board.
  The Federal Reserve Board is doing its best imitation of petrified 
wood. It is not a tough imitation for them. All you have to do is look 
at the Federal Reserve Board and it resembles the Petrified Forest. In 
fact, what I would like to do is, just for those who might be watching 
or those who might be interested, I would like to show them the Federal 
Reserve Board's Governors and regional bank presidents, because they 
don't get enough attention.
  Here is who they are, here is where they are educated, largely their 
experience, and this is how much money they make. This is who sets 
interest rate policy in this country; interest rate policy which now 
has short-term rates too high and therefore the prime rate and other 
interest rates is too high.
  Jerry Jasinowski, President of the National Association of 
Manufacturers, says:

       Interest rates are a dangerous drag on the economy in view 
     of the fact that 1/3 of the world is in a recession.

  He calls on the Fed to cut interest rates.
  Dr. Sung Won Sohn, Norwest Corporation:

       If the Fed were to cut interest rates today, it would help 
     ease the farm crisis, which has become critical because of 
     low commodity prices, bad weather, crop disease, and so on.

  James Glassman--I don't quote him very often, but James Glassman 
says:

       [Interest] rates are not really as low as they seem. After 
     adjusting for inflation, long-term rates are high, and short-
     term rates are even higher. . . . The longer the Fed waits 
     (to cut rates), the closer a serious slowdown, or recession, 
     becomes.

  Mr. President, the Federal Reserve Board's Open Market Committee will 
meet on September 29. Two of these folks still probably think that 
interest rates ought to be increased, despite the fact that our economy 
is slowing down and the real interest rates are far too high now. It 
might serve the money centers' bankers' interests. It certainly does 
not serve the interests of the producers in this country. And there has 
been, for 200 years in this country, a tension between those who 
produce and those who finance production. At this point, with this 
crowd, it tilts in favor of those who believe it might be in the 
interests of the Fed to serve their constituency, the money center 
banks. But there is no reason, given the economic circumstances in our 
country today, for them not to put interest rates where they belong, 
given the current rate of inflation, and that would augur not for an 
interest rate increase on September 29, but a cut.
  Here are the folks. Here are their names. You could put them in a 
barrel and shake them all up and you would still have a gray suit, 
somebody with an economics background, no one from my part of the 
country, and no one who has ever fixed anything or built anything.
  In fact, we have a vacancy now, and I said I would like my Uncle Joe 
to be considered for that. My Uncle Joe doesn't have any particular 
skills that would suggest him for the job, but he used to fix 
generators and alternators, so he has run a business and worked with 
his hands. He fixes things. Nobody here represents producers. Nobody on 
the Federal Reserve Board has an understanding, in my judgment, about 
the productive side of our economy.
  My Uncle Joe is not going be seriously considered, I suppose. But 
what we will probably find is this administration, like all others, 
will find somebody who looks just like this, same color suit, Ph.D. in 
economics. Certainly nobody from the Upper Midwest where they have been 
farming or their folks have run a small business or anything like that.
  I guess the point I wanted to make today is, as we head towards 
September 29, all of the evidence suggests that we ought to be seeing a 
cut in interest rates. I should confess that I actually used to teach 
economics a bit in college. I have been able to overcome that and lead 
a reasonably productive life. All I ask from the Federal Reserve Board 
is to look at this from the standpoint of this country's long-term 
economic health and the economic facts that are now self-evident.
  There is nothing that could persuade a couple of these people, as I 
understand they still believe that we ought to have higher interest 
rates except that they must represent some narrow self-interest for the 
money center banks. Certainly most of them ought to be able to look at 
the facts and understand we need--and this country deserves and our 
economy requires--a lowering of Federal Funds rate and therefore a 
lowering of the prime and other interest rates that represents where we 
ought to be, given the historical interest rates and declining 
inflation.
  Mr. President, I understand that when you come down and are even 
obliquely critical of the Federal Reserve Board, it is like taking on 
the last American dinosaur. I regret that I do that. But it is the last 
part, the last institution that remains impervious to the broader 
public interest. Some think that the Fed is a hero for whatever has 
happened in our economy. I don't happen to view it that way. I

[[Page S10259]]

think they view themselves as a set of human brake pads, and they keep 
their foot on the brake--and good for them. Except that what we have 
now is a need to put interest rates back where they ought to be for 
producers and farmers and others, given the fact that overall inflation 
is down at 1.7 percent over the last twelve months and only 1.5 percent 
since the beginning of this year.
  Today's announcement was that the Producer Price Index for finished 
good in August fell 0.4 percent. This means that producer prices have 
fallen 1.6 percent over the past twenty months. All these numbers augur 
very hard for the Federal Reserve Board to do something that some 
suggest they are not prepared to do. I ask Fed Chairman Greenspan and 
others to see if they can't do what some people now don't expect them 
to do, but do the right thing: On September 29, we reduce those 
interest rates.
  Several of us in Congress are considering offering at least a sense-
of-the-Congress resolution to send a message to the Fed. Who knows 
whether it will get through the door there, but at least send a message 
to say here is what we think. Interest rates have a significant impact 
on virtually every family in America, on every producer, business and 
farmer in this country. And my hope is that at the end of this month, 
given the uncertainty we face in the world, given the numbers from the 
last quarter here in this country showing a slowing of our economy, and 
given the historical low rate of inflation and the fact that we are now 
overpaying because of the Federal Funds Rate, the Federal Reserve Board 
will finally do the right thing.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Utah.

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