Path: bloom-picayune.mit.edu!enterpoop.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post
Newsgroups: americast.wpost
From: americast-post@AmeriCast.Com
Organization: American Cybercasting
Approved: americast-post@AmeriCast.com
Subject: The Fed Loses an Inflation Fighter; Black's Stance, Role Irk Some in
Date: Tue, 24 Nov 92 04:42:49 EST
Message-ID: <3.1992Nov24.044249@AmeriCast.com>
Lines: 115

The Fed Loses an Inflation Fighter; Black's Stance, Role Irk Some
in Congress<By John M. Berry<Washington Post Staff
Writer<RICHMOND=

 Robert Black, a courtly, independent southerner who is the
Federal Reserve's longest-serving policymaker, is about to re-
tire, confident that the central bank's persistence in fighting
inflation has the economy "poised for a period of sustained
growth."

 Black, president of the Richmond Federal Reserve Bank since
1973, has long believed that the way to maximize long-term
economic growth is to have price stability, or at least an infla-
tion rate so low that it hardly matters.

 "We have moved very close to that," Black said in an interview
last week in his office here overlooking the James River. "We
brought inflation down from very high rates to very low rates -
it's close to zero if you account for measurement errors - and
now we have a chance to build a long period of prosperity with
low inflation."

 But even as Black's successor was being named yesterday, some
members of Congress who are unhappy with the Fed's interest rate
policies of recent years are challenging the whole selection pro-
cess for Fed bank presidents. Some lawmakers would like to end
their authority over monetary policy and interest rates altogeth-
er.  Against that background, the chairman of the Richmond bank's
board of directors, Anne Marie Whittemore, announced yesterday
that Alfred Broaddus Jr.  would succeed Black, an economist who
has worked for the Federal Reserve for almost 40 years.

 "Al is an excellent economist and a strong proponent of price
stability," Whittemore said.

 Broaddus worked for the Defense Intelligence Agency as an intel-
ligence research director before coming to the bank in 1970 as an
economist. He became an assistant vice president in 1972, vice
president in 1975 and senior vice president and director of
research since 1985. Broaddus and Black are confidants, often
passing notes back and forth during meetings of the Fed's
policy-making group, the Federal Open Market Committee (FOMC).

 The Richmond Fed's district runs from Maryland to South Carolina
and includes all but a sliver of West Virginia. It regulates bank
holding companies in the district, supervises state-chartered
banks that are members of the Fed system, clears most checks and
provides other services for banks.

 As a Fed president, Black has been the sort of policymaker whose
views have been under attack on Capitol Hill. His career has been
marked by repeated dissents in favor of bringing down inflation.
Sometimes that has been a vote in favor of higher interest rates;
at other times, a vote not to cut rates as fast as preferred by
the majority of the other 11 members of the FOMC.

 Looking back on his two decades of FOMC meetings, an unapologet-
ic Black observed, "We have been too easy more than we have been
too tight." Economists who do not share Black's belief that even
moderate rates of inflation can damage the nation's economic per-
formance probably would not share his assessment about Fed poli-
cy. Certainly some in Congress do not.  Sen. Paul S. Sarbanes
(D-Md.) and Reps. Lee H. Hamilton (D-Ind.) and Byron L.  Dorgan
(D-N.D.), who was elected to the Senate this month, have been
pushing legislation for several years that would largely elim-
inate the policy-making role of Black and the Fed's 11 other dis-
trict bank presidents. The bill would abolish the FOMC and put
monetary policy authority solely in the hands of the Fed's seven
board members, who are based in Washington.

 Under the present arrangement, set up by law in the 1930s, the
seven board members and the president of the New York Federal
Reserve Bank are always members of the FOMC.  Four of the other
presidents serve on a rotating basis, with others participating
in all FOMC meetings but not voting.

 Sarbanes, who has argued repeatedly for lower interest rates
during the past several years, maintains that the role of the
presidents, who are chosen by their respective boards of direc-
tors and are not subject to Senate confirmation, makes the Fed
too independent of the public, even though bank presidents must
be approved by Fed board members in Washington, who are nominated
by the president and confirmed by the Senate.



This month the chairman of the House Banking Committee, Rep. Hen-
ry B. Gonzalez (D-Tex.), announced he is drafting legislation
that would make sweeping changes in the Fed, including having the
president choose the reserve bank presidents from a list submit-
ted by the banks' directors, with the nominee subject to Senate
confirmation.

 Black is disturbed by such proposals. Participation by the Fed
bank presidents in policy making adds a needed dimension since
they are familiar with economic conditions in all parts of the
country, he argued.

 Looking back on his decades of attending policymaking sessions,
he added, "I have seen no evidence that anyone there, including
those who disagree with me most vehemently, are acting in other
than the public interest."

 "Anything that would tend to politicize the Federal Reserve
would not serve the country well," Black said, because it could
force the central bank to focus too heavily on short-run economic
conditions and that could lend an inflationary bias to policy and
ultimately lead to lower growth.<02:03 11-24C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

For more information, send-email to American Cybercasting Cor-
poration (usa@AmeriCast.COM)