Treasury Secretary Nicholas Brady was quoted last week as favoring a review of congressional proposals to make the Federal Reserve more responsive to the economy. Rep. Lee Hamilton, D-Ind., co-chairman of the Joint Economic Committee, has proposed, among other things, that president of district Federal Reserve banks be prevented from voting on monetary policy since they are appointed by private-sector bankers without congressional review. American Banker reporter Jeanne lida asked:
Q Should the structure of the Federal Reserve be altered to make it more responsive to economic conditions?
* Bert Ely President Ely & Co. Inc., Alexandria, Va.
The most basic issue regarding the Fed is the fundamental wisdom of having any government agency attempting to fix the price and quantity of that portion of the credit supply we call money. Why do we have any appointed body trying to influence this? Markets can do it better.
The Fed deservedly took a lot of the blame for what happened in the 1930s, and it should take much of the blame for what is happening in the economy today. Beginning in the mid-1970s, the Fed engaged in interest rate management policies that helped to fuel speculative bubbles that have burst, causing the asset deflation now troubling our economy. As we better understand the severe consequences of asset deflation, hopefully this will lead to fresh thinking about the wisdom of government manipulation of the cost and supply of money.
* Robert Litan Senior fellow in economics Brookings Institution, Washington, D.C.
Tampering with the Fed's governing structure is playing with fire. It's playing with the reignition of inflation.
The bond markets would react very negatively if the Fed's independence were threatened. They would factor in the inflationary bias in their decisions to pay for bonds.
This kind of proposal has come up repeatedly over the decades. The Fed becomes the scapegoat for the economy's not growing fast enough - especially in the months before a presidential election. The criticism of the Fed goes back to the 1950s and 1960s, but these proposals have never gotten very far.
* Sung Won Sohn Senior vice president and chief economist Norwest Corp., Minneapolis
I disagree that district bank presidents not appointed by the president should not be allowed to vote. A main concern of people in Minneapolis is whether policy is too much driven by Washington.
The composition of the Board of Governors is not representative of the hinterlands of America. Four are from New York or Boston.
Technically they are assigned to the districts, but having four out of seven from the Northeast is not what you would call a balanced representation geographically. If our district president was not allowed to vote, our influence would diminish.
* Bram Goldsmith Chairman of the board and chief executive officer City National Bank of Beverly Hills, Calif.
I disagree with Treasury Secretary Brady. I served for six years as a branch director of the Federal Reserve, and they are a very independent group of thinkers. That imparts some autonomy to the central bank.
There aren't many changes you could make to the structure of the Fed. You can't turn the spigot on and off. Our problem is not the responsiveness of the Fed to the economy; our problem is a recessionary economy where there is no confidence from the people in the street.
* Lyle Gramley Consulting economist Mortgage Bankers Association, Washington, D.C.
I don't think what Treasury Secretary Brady has in mind is making the Federal Reserve more responsive to the economy; it's making it more responsive to what the administration wants it to do.
What is being proposed is to put political pressure on the Fed, and once you do that, you lose something that has served our country well for over 80 years.
