WASHINGTON -- House Banking Committee Chairman Henry B. Gonzalez's plan for overhauling the Federal Reserve was dealt a setback last week when President Clinton refused to support the Texas Democrat.
The President argued that Rep. Gonzalez's proposal to require presidential appointment of Federal Reserve Bank presidents "runs the risk of undermining market confidence in the Fed."
In addition, he said, "There is a general feeling that the system is functioning well and does not need an overhaul just now."
"On balance, I am disinclined to seek a change in the Federal Reserve Act at this juncture," the President added in a Sept. 20 letter.
Fed Chiefs to Be Scrutinized
The President's letter comes just as Rep. Gonzalez is preparing for a series of hearings on the Fed that will focus, in part, on the role of the district bank presidents in setting monetary policy.
Rep. Gonzalez is pressing for earlier disclosure of monetary policy decisions, greater diversity on the Federal Reserve Board, and presidential appointment -- with Senate confirmation -- of district bank presidents.
House Banking Committee aides interpreted the President's letter as neutral, noting that he chose the word "disinclined" to express his intentions on seeking legislative change.
"We felt that left the door open," said one committee aide.
Praise for Gonzalez
The President also took pains in his letter to praise Rep. Gonzalez, referring to his letter as "thoughtful" and suggesting twice that the banking committee chairman's proposal has merit.
However, a number of congressional aides said Friday that Rep. Gonzalez's proposal faced long odds before last week and even tougher prospects following President Clinton's decision not to back the banking committee chairman.
Rep. Gonzalez, a longtime critic of the Federal Reserve System. began his latest effort on July 22. after the central bank's policymaking arm lowered its targets for money supply growth, an action that had the effect of making less money available to support economic growth.
Lack of Diversity Seen
At that time. Rep. Gonzalez noted that the Federal Open Market Committee, which sets monetary policy, included five of the 12 district bank presidents, who, he said, "mostly represent commercial banks."
"In general, the Federal Reserve decision-makers are bankers or friends of bankers," the Texan said in his July letter. "Decision-makers representing the concerns of agriculture, small business, labor, consumer, and community groups are almost unheard of."
In addition to urging a change in the way district bank presidents are selected, Rep. Gonzalez said the President should use his appointment power to "put a different face" on the Fed as terms of sitting governors expire.
Wayne Angell's term ends on Jan. 31. he noted, and the person appointed to fill that seat could be named vice chairman after July 24,1995, when David Mullins' term expires. (However, Mr. Mullins' term as a board governor continues through Jan. 31, 1996.)
