[Congressional Record Volume 145, Number 23 (Tuesday, February 9, 1999)]
[Extensions of Remarks]
[Page E163]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             PRICE STABILITY AND INFLATION TARGETING REFORM

                                 ______
                                 

                            HON. JIM SAXTON

                             of new jersey

                    in the house of representatives

                       Tuesday, February 9, 1999

  Mr. SAXTON. Mr. Speaker, I rise today to introduce the Price 
Stability Act of 1999 and to outline the reasons it is needed. More 
detailed information on inflation targeting is available in several 
studies I released on this topic as JEC Chairman in the 105th Congress.
  This legislation would institutionalize the successful informal 
inflation targeting policy used by the Federal Reserve in the last 
several years. This bill establishes that the primary and overriding 
goal of monetary policy is price stability. Price stability means that 
Federal Reserve policy is geared to preclude significant inflation or 
deflation.
  In the last several years the Federal Reserve has squeezed inflation 
out of the economic system, reducing inflation, interest rates, and 
unemployment together. By fostering and sustaining the economic 
expansion, this policy has led to a strong economy that has flooded the 
Treasury with tax revenue, erasing the deficit and creating large and 
growing budget surpluses.
  This policy has been an outstanding success, but its basis has not 
yet been fully explained. Fed Chairman Alan Greenspan confirmed to me 
in a JEC hearing last year that the Federal Reserve has carried out an 
informal inflation targeting approach to price stability. Chairman 
Greenspan also endorsed the idea of institutionalizing this inflation 
targeting approach in law. However, although inflation targeting is the 
norm in many countries, its significance in recent Federal Reserve 
policy often is not completely appreciated. The discussion of this 
legislation may serve to improve understanding of monetary policy and 
lock in the hard-won economic gains of the last several years.
  This legislation mandates that the Federal Reserve establish an 
explicit numerical definition of price stability using a broad measure 
or index of general inflation in the form of inflation targets that is 
available and accessible to the public. It also mandates that the 
Federal Reserve disclose any adjustment to inflation targets and 
specify the time frame for achieving price stability. The Federal 
Reserve would be required to specify in advance what actions it will 
take if its goals are not met within the specified time frame.
  Chairman Alan Greenspan's monetary policy has successfully reduced 
inflation and unemployment together, a feat that many economists 
regarded as unattainable. These successes of inflation targeting should 
be locked-in so that they are not dependent on the presence of one 
particular individual as Chairman of the Federal Reserve. This 
enactment of inflation targeting legislation would be a fitting tribute 
to Chairman Greenspan and his successful conduct of monetary policy.

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