[Congressional Record Volume 145, Number 93 (Monday, June 28, 1999)]
[Senate]
[Pages S7691-S7692]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                             INTEREST RATES

  Mr. DORGAN. Madam President, if the Senator from Mississippi is 
prepared to speak on something, I would be happy to defer. I want to 
speak for 5 minutes on something that is going to happen, perhaps, in a 
day or so. I have spoken about this a great deal. That is the question 
of interest rates and the Federal Reserve Board that will be meeting 
this week.
  We are told that the Federal Reserve Board will almost certainly 
increase interest rates later this week. I thought it would be 
interesting to include in a discussion on the floor an analysis of what 
has happened to the rate of inflation in this country.
  Interest rates are still at a rather high rate after adjusting for 
inflation. The economic rent for money is still very high given the 
historic American standards. The inflation rate--especially the core 
inflation rate--has dropped very dramatically in recent years. 
Incidentally, despite all the predictions by all of the best economists 
at the Fed and elsewhere, they used to say if you penetrate through 6 
percent unemployment you clearly have massive inflation problems. You 
just can't have low unemployment and low inflation.
  The economy, of course, confounded all of them. I think part of the 
reason was the models are all wrong. The models reflect traditional 
economic theory, and that doesn't account for the global economy in 
which producers produce anywhere they want in the world at lower costs 
and, therefore, put downward pressure on wages in the industrialized 
countries. But despite that, even if the models are wrong, what has 
happened is that as unemployment has reduced in this country and come 
down rather dramatically over the years, so too has inflation.
  Looking at the rates of inflation, the Consumer Price Index, going 
back to 1990, we were at 6 percent, then down to just over 3 percent, 
under 3 percent, and down under 2 percent. The fact is inflation is 
well under control. The downward pressures that the global economy has 
put on wages in this country, I think, will continue to keep the rate 
of inflation well under control.
  The Federal Reserve Board has a different set of circumstances it 
will evaluate. The Federal Reserve Board is an interesting board. It 
was created in the nineteen-teens. President Wilson and those involved 
promised the country: We are not and will not ever create a strong 
central bank. We just won't do that.
  For many years, of course, the Fed has had a central banking function 
that has been enormously strong, and largely unaccountable. Some people 
think that is a virtue to be unaccountable to anything or anyone else 
in the country so it can run monetary policy as it sees fit, unlike 
others who are involved in the executive and legislative branch running 
fiscal policy.
  The Federal Reserve Board is made up of a Board of Governors. We have 
one seat vacant. We have one seat that is being vacated. It is also 
joined in the Open Market Committee by a rotating group of members of 
the presidents of the regional Federal Reserve banks. The presidents of 
the Federal Reserve banks are hired and retained by their boards of 
directors who are their bankers in their regions. Despite the fact they 
are not confirmed by anyone and are accountable only to the bankers and 
boards of directors in their region, they come to town on a rotating 
basis with the Board of Governors' to vote on interest rate policy.
  The Fed will probably, the day after tomorrow, decide it should 
increase short-term interest rates again. I don't agree with that. I 
think it is a terrible decision to make. I don't think any evidence 
that justifies a hike in rates. Some of my colleagues come to the floor 
and say: What are you talking about? Mr. Greenspan ought to be credited 
for the great economy.
  In my opinion, this nation's economic performance--if you review the 
record--is in spite of the estimates by Mr. Greenspan and the Federal 
Reserve Board. They insisted we could not

[[Page S7692]]

pierce 6-percent unemployment without having a rekindling of inflation. 
They were wrong. The unemployment rate has remained below 6-percent for 
nearly five years with low inflation.
  Now the Fed will say it has finally seen a demon in a closet 
somewhere called inflation that they can use to justify increasing 
interest rates. I think they are wrong. The American people, and 
especially producers, are already paying a higher economic rent for 
money than is currently warranted, given the core rate of inflation.
  Organizations such as the National Association of Manufacturers 
believe it is not appropriate to have the Federal Reserve Board once 
again increase interest rates. The National Association of 
Manufacturers sent a fax sheet last Friday to 535 Members of the House 
and the Senate detailing why they think interest rates are already high 
enough and that an increase in the rates is not justified in light of 
an already slowing economy.
  I happen to agree with that; I know others do not. I also happen to 
think the Federal Reserve Board and these Members ought to have some 
basic accountability. We ought to at least give them credit if you 
think they have done a wonderful job. Here are their names, addresses, 
pedigrees, and grey suits. Here are their salaries.
  If you think, however, they are pursuing an unreasonably high 
interest rate policy, given the rate of inflation, here is who they 
are. Here is how much money they make. Here is who the regional Fed 
bank board of directors have appointed to be in charge of public 
policy. They come on a rotating basis, galloping into Washington, DC, 
shutting their large oak doors and make a decision on behalf of 
America. They will decide they think interest rates aren't high enough.

  They have decided for a long while that too many people were working 
in this country--a decision I did not quite understand. They serve 
their own constituents; their constituents are their member banks. 
Perhaps some day we can have a debate about monetary policy in this 
Senate. A century ago it used to be debated in barber shops and bars.
  Not too long ago, I studied money and banking in graduate school. 
Lyndon Johnson was President and William McChesney Martin was head of 
the Federal Reserve Board. He was going to increase interest rates by 
one-quarter of 1 percent. Lyndon Johnson sent for him to come down to 
the ranch in the Perdinales in Texas for a barbecue. He put his arms 
around him and almost squeezed barbecue juice over that fellow--all 
over one-quarter of 1 percent.
  Now it is not a big deal. The Fed shuts their door and everybody 
says: Hosanna--whatever the Fed thinks is what the economic doctrine 
ought to be.
  Not with me. I think there is no justification with respect to the 
rate of inflation for the Fed to put this additional charge on American 
producers or the American people. When the Fed meets this week behind 
closed doors--and this is who they are, where they live, how much money 
they make--give them credit or blame them, depending on your economic 
doctrine.
  My policy is interest rates are higher than is justified, or higher 
than justified at this point, given the rate of inflation in this 
country. The economic rent now charged for money exceeds the economic 
rent by historical standards over a long period of time. For the Fed to 
shut its doors and decide the economic rent ought to be higher, in my 
judgment, is fundamentally wrong.
  That is probably a minority view these days, given the reverence for 
Fed policy, but it is at least therapeutic for me to say it on a 
Monday, preceding the Fed's meeting. If they increase interest rates at 
their meeting this week, I will come back with more to say. I hope 
perhaps they will surprise me and others and decide there is no data to 
justify an increase in interest rates given the rate of inflation in 
our economy today.
  I yield the floor.
  The PRESIDING OFFICER (Ms. Collins). The Senator from Texas is 
recognized.

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