Official sees easier time for Fed

November 10, 1994|By Bloomberg Business News

HOUSTON -- Republican control in Congress will mean an easier time for the Federal Reserve System in both the House and Senate, Fed Governor John P. LaWare said yesterday.

The GOP sweep in Congress means "one effect will be to make it much pleasanter to go up and testify" before congressional committees, Mr. LaWare said to reporters after a speaking engagement in Houston.

He cited the defeat of Sen. Jim Sasser, a Tennessee Democrat, at the polls and the decision by Democratic Sen. Donald W. Riegle Jr. of Michigan not to seek re-election as signaling that Fed policy-makers won't continue to face harsh criticism when they appear before the Senate Banking Committee.

Their departure from Congress "takes two people off the banking committee who have been very critical of not only monetary policy but also regulatory policy -- and almost everything we do," Mr. LaWare said.

Mr. Riegle and Mr. Sasser this year repeatedly questioned why the Fed is raising interest rates at a time when the rate of inflation remains low.

And while frequent Fed critic Sen. Paul S. Sarbanes won re-election Tuesday, the Republicans' control of the Senate means that he will not be the next chairman of the Senate Banking Committee, a position he had been in line for.

Mr. LaWare also said the Fed will see "dramatic" changes in the House. While he didn't refer to House Banking Committee Chairman Henry B. Gonzalez by name, Mr. LaWare's comments were an obvious reference to the Texas Democrat's repeated attacks on the Fed in general and the policies of Federal Reserve Board Chairman Alan Greenspan in particular.

Republican control of the House means Mr. Gonzalez will lose his chairmanship to Rep. Jim Leach of Iowa, a Fed defender.

Mr. Leach supports the Fed's policy of raising interest rates early to keep inflation from accelerating next year. The Fed moved key interest rates higher five times this year, nudging the federal funds rate on loans among banks to 4.75 percent from 3 percent and the discount rate charged on direct loans to banks to 4 percent from 3 percent.

The central bank's policy-making Federal Open Market Committee meets Tuesday and is widely expected to act to push the federal funds rate up another half-point, to 5.25 percent.

When the new Congress takes its seats next year, it "won't have an ideological mind-set," Mr. LaWare said. Rather, he said, Congress will show "a constructive attitude toward the competitive needs of the banking industry," he said.

Democrats in Congress over recent years loaded down banks with heavy regulatory and reporting requirements, he said.

GOP control increases chances that Congress will enact legislation to grant new powers to the banking industry after years of Democratic opposition blocked such measures, Mr. LaWare said in a speech before a conference of the Dallas Federal Reserve Bank and Houston Baptist University.

"I expect Congress will consider in detail -- and enact -- broad reform measures to permit the integration under common ownership of commercial banks, investment banks and insurance companies," Mr. LaWare said.

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