WASHINGTON - The Federal Reserve Board's attempts to prevent a resurgence of inflation have not been too harsh yet, acting budget director Alice Rivlin told a Senate panel yesterday.
Rivlin's remarks came during a confirmation hearing on her nomination as director of the Office of Management and Budget before the Senate Government Affairs Committee.
Her comments came after Sen. Byron Dorgan, D-N-D. - an outspoken opponent of the Federal Reserve's attempts to slow economic growth this year with five short-term interest rate increases - asked Rivlin why the Clinton Administration has said little about the Fed's actions.
"The administration respects the independence of the Fed. That's the way we have set up the Federal Reserve. It is independent, and we should respect that independence," Rivlin said.
"There is a history of many recoveries from a recession ending because the Federal Reserve overdid it, adopted too strict a monetary policy. I don't think they've overdone it yet," she said.
While Dorgan said he respected the Fed's independence, he said he saw "no credible evidence that inflation is on the rise" and, therefore, no justification for the Fed, "without public discussion or debate, to put the breaks on the economy."
"I,m somewhat amazed" the administration hasn't been more outspoken, but "there is a political correctness about the way you discuss the Fed and monetary policy" because any discussion is seen as politicizing the Fed, Dorgan said.
"I share your view that there is no imminent threat of inflation, but the Federal Reserve has tended to worry more about inflation than natural. The question is how cautious do they have to be," Rivlin said.
Rivlin's confirmation hearing came on the same day the Federal Open Market Committee met and chose not raise rates for the sixth time this year.
Sen. John Glenn, D-Ohio, the chairman of the Government Operations Committee, praised Rivlin for her extensive budget experience and said he was convinced Rivlin would be ideal in "the second most important job in government after the president."
Other committee members agreed with Glenn, expressing delight that Clinton named her to the post.
"I don't think we even need a confirmation hearing," Glenn said, and predicted that her Senate confirmation would be unanimous and quick.
Rivlin has been deputy director in the budget office for 18 months and acting director since June when budget director Leon E. Panetta was named White House chief of staff in an administration personnel shake-up,
Rivlin, who is considered a hawk on reducing the deficit, was the founding director of the Congressional Budget Office in 1975. She held the post until 1983.
The CBO, which analyzes the, federal budget and the costs of legislation for Congress, ~earned a reputation during Rivlin' tenure for taking independent stances on politically sensitive issues - a reputation it still enjoys today.
She served as a fellow at the Brooking Institution from 1983 until becoming deputy director of the OMB when Clinton took office last year.
When Clinton announced Rivlin's nomination he said, the OMB "will remain in very good hands."
Many Washington observers saw Rivlin's nomination to the top budget post as a logical move considering her background and good working relationship with former director Panetta.
