The Federal Reserve should continue to "focus its policies on the long-term goal of reducing inflation in a firm and stable manner," the Senate Banking Committee declared in a report on monetary policy published yesterday.
The committee endorsed the Fed's recently announced money targets for 1981, echoing a House Banking Committee monetary policy report released a week ago.
The Chairman of the Senate committee, William Proxmire (D-Wis.), was critical of the Fed's initial refusal to spell out its money targets for 1981 when giving its mid-year review of money policy to Congress.
One of the seven recommendations in yesterday's report was that the Fed announce its numerical targets for its prospective monetary policies. Fed Chairman Paul Volcker eventually published the numbers at the end of July in letters to Proxmire and Henry Reuss, chairman of the House Banking Committee.
Among the report's other recommendations:
The rate of inflation must be brought down and the growth of the money and credit aggregates limited in a "firm and stable manner until significant progress has been made in reducing inflation."
The Fed should establish multi-year objectives for a gradual but steady reduction in the money and credit aggregates.
The target ranges for money growth should be narrowed. The committee believes that the wide ranges given at present provide "less concrete information about the Fed's intended policies" than iss desirable.
The Fed should not use domestic interest rates to secure the short-run stability of the dollar in the foreign exchange markets.
The Fed should change the merchanism for setting the discount rate, to bring it more into line with movements in market rates. The House committee made a similar recommendation in its report last week.
There must be restraint in the Federal budget as well as an anti-inflationary money policy. The later "alone cannot be expected to control inflation," the committee said.
Sen. Adlai Stevenson (D-Ill.) dissented from the report's recommendation on the publication of numerical targets for the money supply. He said that "unforeseen developments at home and abroad make precise targets a quixotic enterprise."
In a supplement to the report, Senators Donald Stewart, Don Riegle and Paul Sarbanes warned that the Fed Should not undermine attempts to boost the economy next year through tax cuts by sticking to a too restrictive monetary policy.