Honorable Alan Greenspan Chairman
Federal Reserve Board Washington, D. C.
Dear Mr. Chairman,
Your testimony before the Senate Budget Committee on January 25 once again raises serious questions about the immense political and economic power that the Federal Reserve Board has assumed for itself over the entire nation, from the poorest to the wealthiest citizen.
Your comments have tilted the political landscape in favor of President Bush’s proposed $1.6 trillion tax cut, and, more importantly, threaten to diminish drastically a much needed national debate over fiscal policy and its impact on all citizens and all sectors of the economy. These are political, as well as economic and social issues, which go well beyond the more narrow responsibilities assigned to the Federal Reserve Board as monetary policy czar.
It is interesting to note that you have expressed doubt yourself about the wisdom of allowing the Federal Reserve to exert influence on matters beyond monetary policy. The Wall Street Journal of January 29 contains this quote attributed to you in a recently-released transcript from a closed-door Federal Reserve Board meeting in 1995:
“The Federal Reserve is presumed an honest nonpartisan broker which, therefore, -means that suddenly everyone wants to drag us into the middle of big problems….the markets truly believe that we know what is going on in the economy to a degree that no one else really does…I worry abourthat basically because we could be our own worst enemies in this regard.”
You appeared to ignore these concerns in your testimony before the Budget Committee on January 25. In fact, the testimony seems to be an overt attempt by the Federal Reserve to intervene in Congressional policy deliberations and undermine the Legislative Branch’s authority to decide the fate of fiscal policy initiatives put forward by the President.
The mischief of the Federal Reserve’s ventures outside the monetary policy arena is intensified by the timidity of Congress in questioning the wisdom, motivation or facts that lie behind whatever message that you and other Federal Reserve Governors may utter. This creates a dangerous perception of the Federal Reserve as all-knowing omnipotent government entity as your comments in the 1995 transcript suggest.
The Federal Reserve’s statutory duties fall into four general areas: (1) conducting monetary policy; (2) supervising and regulating banking institutions and protecting the credit rights of consumers; (3) maintaining the stability of the financial system: (4) providing certain financial services to the U. S. government, the public, financial institutions and foreign official institutions. The Federal Reserve Act does not delegate to the Federal Reserve Board responsibility for the federal government’s fiscal policy.
If the Federal Reserve is intent on reaching beyond its monetary policy mandate and continuing as a “separate government” then the Congress has a responsibility to rein in these expansive tendencies. The Federal Reserve should also be required to end the secrecy which surrounds its decisions and hides the data which might explain the rationale to the public and the Congress for policy positions and opinions. It is significant that you express unease about the Federal Reserve’s excursions beyond monetary policy in the transcript of the 1995 Federal Reserve Board meeting. But, to learn this five years after the fact is not in keeping with a democratic system which depends on timely and full exposition of the deliberations and findings of its public officials. Will we have to wait until 2006 to learn how you arrived at your decision in favor of the President’s current tax policy?
Clearly, meetings of the Board of Governors where decisions are made, such as those described by you to the Senate Budget Committee on tax policy, should be conducted in open sessions so that the public and the media can have timely access to the rationale and fact finding behind such far reaching pronouncements.