The Congressional Record is a unique source of public documentation. It started in 1873, documenting nearly all the major and minor policies being discussed and debated.
“FEDERAL RESERVE RAISING OF INTEREST RATES HAS MAJOR IMPACT” mentioning the Federal Reserve System was published in the House of Representatives section on pages H1911-H1912 on April 29, 1997.
The publication is reproduced in full below:
FEDERAL RESERVE RAISING OF INTEREST RATES HAS MAJOR IMPACT
The SPEAKER pro tempore. Under the Speaker's announced policy of January 21, 1997 the gentleman from Massachusetts [Mr. Frank] is recognized during morning hour debates for 5 minutes.
Mr. FRANK of Massachusetts. Mr. Speaker, I am about to engage in an exercise which is clearly second best. The Federal Reserve Open Market Committee a couple of weeks ago decided that we were creating too many jobs too rapidly in America and, fearing that this would be destabilizing, they raised interest rates. The Federal Reserve Open Market Committee will meet again in May and July, and there is a very real prospect that they may do this again.
No single set of specific decisions taken, I believe, by anybody in the government so far this year or for the next few months, will have the impact on our economy that these decisions have had. Yet, they will be going largely undebated in this Congress because the Committee on Banking and Financial Services, which has under our rules jurisdiction over this matter, has refused to have a hearing.
Specifically, the gentleman from Iowa [Mr. Leach], the chairman of the committee, has refused a request from all but one of the non-
Republican members. Twenty-four of the Democrats and the one Independent have written to him and said, please, this is an essential issue, let us have a hearing. The chairman says to have a hearing, to have a hearing on whether or not they should continue to raise interest rates to choke off growth would be second-guessing the Fed and tampering with its independence.
I wish we could have that hearing, and I hope that the chairman will reconsider, and maybe some of the majority Members will join us. But until that time, we have no other option but this. I say that because I am about to engage in a one-sided debate with Mr. Laurance Meyer, who is a member of the Board of Governors of the Federal Reserve. I would much prefer to have Mr. Meyer in before us in a hearing room so we can engage in a two-sided debate. The chairman of the Committee on Banking and Financial Services has denied us that opportunity.
What I want to point out, however, is what now appears to me frankly the equivalent of a smoking gun in our understanding of why the Federal Reserve System decided consciously and deliberately to increase unemployment in America. Remember, that was their view. Unemployment, they said, at 5.2 percent was too low. They believed they needed to get it back up. I think 5.5 is their target.
But here is what Mr. Meyer says; he acknowledges that there was no evidence yet of inflation. He acknowledges that there was no excess utilization, there was nothing that led him now to see inflation. He thinks that it may appear in 6 months to a year, and that is why he wanted to cut it off. But acknowledging that he may have acted unnecessarily, he gives this justification; and this I think is central to this debate, and it is why so many of us want a hearing. He says: This involved comparing the relative costs of two potential policy mistakes, tightening when such a move turned out to be inappropriate or failing to tighten when a tightening would have been appropriate.
In other words, he says the better mistake to make, if you had to make a mistake, obviously you do not want to, but we all recognize uncertainty, better we should tighten when it is inappropriate.
Why? And here is what bothers so many of us about this decision. We are not talking hard economics here. We are talking values. We are talking social policy, and it is not a decision the Federal Reserve ought to be allowed to make without full debate. He says: If the Fed tightens and it turns out to have been unnecessary, the result would be utilization rates turn out lower than desired and inflation lower than what otherwise would have been the case.
In the context of the prevailing 7-year low of the unemployment rate, that translates into a higher, but still modest, unemployment rate, and further progress toward price stability, a central legislative mandate. He then says: This may not be the best solution. I would prefer trend growth and full employment. But then he says: But the alternative outcome just described is not a bad result. Indeed, it would be a preferred result for those who favor a more rapid convergence of price stability.
Think about what Mr. Meyer has said. An increase in the unemployment rate is not a bad result, he says. It is not his preferred result, but it is not a bad result. That is hundreds of thousands or more unemployed Americans. That is a step that makes it much harder to absorb welfare recipients. When a Federal agency says that an increase in unemployment is not the preferred, but it is not a bad result, that is a serious problem.
He then goes on to acknowledge that this would be a preferred result for those who favor a more rapid convergence to price stability. In other words, he is acknowledging that some of his fellow members of the Open Market Committee, unlike him, not only do not think this is a bad result, they think this is a good result. We have here an acknowledgment from one of the Federal Reserve Board governors in a speech that really was meant, I think, as the official explanation that he does not think an increase in unemployment is a bad result, and that he acknowledges that many of his colleagues in fact think this is the preferred result. They have decided that a little bit of inflation is too much and, if we can get to zero inflation with higher unemployment, that is not a bad result. Congress must debate this policy.
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