Commentary: The Fed: Some Red Tape Is Worth KeepingLaura Cohn
When Alan Greenspan appears before the House Banking Committee on July 22, it could be a swan song of sorts for the 73-year-old Federal Reserve chairman. No, not that kind of swan song--friends say he relishes the idea of a possible reappointment next June.
Rather, July 22 could mark the last appearance by a Fed chairman as mandated by the Humphrey-Hawkins Act. That 1978 statute, which requires Fed chiefs to trudge up to the Hill to testify twice a year, is about to expire. That doesn't bother Senate Banking Committee Chairman Phil Gramm (R-Tex.) and other conservatives, who never liked the law's mandate that the Fed must make policy aimed at producing full employment.
If Congress fails to renew, the earth in Washington won't tremble. Greenspan has been one of the most open central bankers ever and would still heed requests for his testimony. But future Fed chiefs may not be so cooperative. That's why Congress should think twice before snuffing out the law.
MONETARY MANDARINS. To understand why Congress mandated appearances in the first place, recall the old Imperial Fed: a club of monetary mandarins that, liberals feared, was becoming a government unto itself. Nobody was more a target of the act than the late Arthur F. Burns, Fed chief from 1970 to 1978, who bristled at lawmakers' questions. He was followed in August, 1979, by Paul A. Volcker, another prickly banker who believed that disclosure limited policy options.
Compared to them, Greenspan is a model citizen, speaking his mind and pursuing pro-growth strategies. But he's the exception. Without Humphrey-Hawkins, there would be no regular forum for the world "to see that the Fed is thinking through what it's doing," warns University of Texas Professor James K. Galbraith, who helped draft the act.
The thought of losing the Humphrey-Hawkins ritual has Wall Streeters aghast. "People plan their vacations around it," says Richard A. Yamarone, an economist at Argus Research Corp., a New York-based concern. "Taking away Humphrey-Hawkins would be like taking away the game plan."
Indeed, the Fed's report, released in February and July, gives everybody simultaneously a handy set of data on the economy and forecasts for growth, prices, unemployment, and money supply. That data, always presented in a consistent format, provides a clear view into what shaped the governors' thinking. Renewing the law in some form would ensure that a key part of Greenspan's legacy--greater openness--will continue. How about the Alan Greenspan Truth in Monetary Policy Act?