Barney Frank's Advice to Ben Bernanke

Recognizing that the Federal Reserve Chairman's position is structured as a 12-year term to preserve independence from an excess of political influence from Congress or the President, Congressman Barney Frank, nevertheless, had some interesting views he hopes Ben Bernanke will take to heart. 

Here's the link to the full text of the Speech to the National Press Club, available on Congressman Frank's House Website:  http://www.house.gov/frank/pressclub07.html

Here are some highlights of remarks focused on the Federal Reserve:

" MODERATOR: How does the Federal Reserve fit into your agenda? How do you think the Fed should change, if it should?

FRANK: Well, one, I think we should be able to talk about it more. . . . there are people in this country who think that the Fed somehow should be above democracy. . . .I mean, I remember talking to some people in the Clinton administration: Oh, we can't discuss interest rates.

I mean, we can debate whether Terri Schiavo's life should be recognized as over. We can debate abortion. We can debate wars in Iraq. We can debate the most fundamental questions in human existence, but God forbid anybody in elected office should talk about whether or not we need a 25-basis point increase in the Fed. Somehow, that's sacrosanct. No, it isn't. It's public policy.

One, I don't want a change. There are people who have been arguing that the Fed should have its mandate changed, that the Humphrey-Hawkins Act, which says it should deal both with stable prices and maximum [employment], that that should be changed, and it should just go to stable prices.  That's not going to happen when we're in power. And we can prevent that from happening.

Secondly, though, they have to pay more attention to wages. And I'm hoping that Ben Bernanke will recognize this. The last report we got -- the Fed comes and testifies before both houses twice a year and they present a report, the Humphrey-Hawkins report. . . . .There were 13 sections about this part of the economy, that part of the economy. In 12 of the sections, they talked about the economy in real terms, i.e. adjusted for inflation. . . . .Then they got to wages, and wages were not adjusted for inflation. They talked about nominal, i.e. they made wages look bigger than they are.

I think the Fed could show a little more social sensitivity to this. . . .I think the danger will be this . . .: Wages may now be starting to rise, real wages. One, they've been depressed for so long, there's a natural tendency for that to happen. Inflation, if it stays down, allows real wages to go up.  What I fear is that respected opinion, including the financial pages of some of our liberal newspapers, will start worrying that wages are going up. And oh, if wages go up, that's bad.

If corporate profits go up, that's a good thing. If wages go up, that's a bad thing. That's the basic received wisdom which I'm trying to change.  But what I'm afraid is that the Fed will join in this and that you will have people in the Fed saying, well, geez, wages are going up; we better raise the interest rates. And I talk about war on wages.

My fear is that, if we look at past practices, the Fed will be tempted to blame real wage increases, which are long overdue and which could be considerable for some time and still not have caught up, and they'll blame that as the reason for cutting back. So that would be my concern. "

(ag) Feb. 20, 2007, in Congress, Economy, Federal Banking Agencies