Newspaper article THE JOURNAL RECORD

Hoenig: Privacy for Fed Decisions Keeps Prices Stable

Newspaper article THE JOURNAL RECORD

Hoenig: Privacy for Fed Decisions Keeps Prices Stable

Article excerpt

Insulating Federal Reserve decision making from the political pressures of an open public debate helps it achieve its primary function of stabilizing prices, the new president of the Kansas City bank said Thursday.

"To come up with a better policy, sometimes you need a debate where you can speak freely without getting a certain spin on it," Tom Hoenig told reporters in Oklahoma City.

He became president of the Federal Reserve Bank of Kansas City on Oct.

1, succeeding Roger Guffey, who had headed the 10th District Bank since 1976. Hoenig will become a voting member of the Federal Open Market Committee, the monetary policy making arm of the nation's central bank in 1992 in the annual shift in voting assignments. The Kansas City Fed president votes every third year.

The Federal Reserve "is a product of the democratic process. It is not outside that process," he said.

A recurring debate in Washington, D.C., on whether Fed presidents should be allowed to vote or whether committee meetings should be open forums surfaced in the Senate on Wednesday.

The committee, made up of the seven members of the board of governors and five bank presidents, meets behind closed doors about every six weeks.

Governors are nominated by the president and confirmed by the Senate.

Hoenig said that structure was established as a compromise to buffer monetary policy from political pressure.

"The Federal Reserve is very sensitive to Congress. The board of governors listens very carefully."

The private selection of the bank presidents make them less immediately affected by Congress, but the operation of the whole is "overall fairly democratic."

Hoenig said the question is what Congress wants to change about the system _ whether they are more concerned about making the policy-making function more politically responsive or whether they are more concerned with the way it functions.

"History tells you that if it's more political, you get more inflation."

Maintaining an even keel in the economy through stable prices is the Fed's mission, and Hoenig said the system has worked well over the years.

The recent easing of the discount rate is a case in point. The committee takes in all the complex economic data and looks to the future to determine how the monetary policy should be adjusted.

"The information we had rationalized a cut in the discount rate," he said. "We have very little inflation, and interest rates are coming down.

Monetary policy does not work quickly. It's a slow process.

"Monetary policy cannot help you with your Christmas buying season.

We're looking at next summer."

He said the Fed does not have a targeted interest rate where it believes the economy should be.

"We have an immensely complex economy. What is a high interest rate at one time may be a low rate at another. …

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