House Majority Leader Jim Wright (D-Tex.), and 65 Democratic colleagues, yesterday introduced legislation designed to pressure the Federal Reserve Board to ease its tight money policy and allow interest rates to fall.
"The recession which the nation is suffering did not need to happen," said Wright. "It is the result of a misbegotten policy of the Fed which deliberately abandoned any concern for interest rates and thus sent rates skyrocketing."
The sponsors include Rep. Fernand St Germain (D-R.I.), chairman of the Banking Committee, and Rep. Henry Reuss (D-Wis.), the former chairman.
The measure is almost identical to legislation introduced by Sen. Robert C. Byrd (D-W. Va.) and 33 other Democratic senators. The proposal is almost sure to face tough sledding in the Senate, but in the House it may win the backing of the Banking Committee, allowing it to get to the floor.
The bill would, in effect, require the Federal Reserve to abandon a policy adopted in October 1979. In an effort to control inflation, that policy focused all efforts on restricting the money supply. The effect has been to keep the "cost" of money high, which translates into high interest rates.
In a statement sharply attacking the policies of the Federal Reserve, the sponsors of the House bill said:
" Federal Reserve policy has been an economic disaster for the country. Its results are inescapable. Because the Fed deliberately abandoned any effort to keep interest rates within reason, they quickly reached and have maintained their highest levels in American history, plunging the nation into the severest recession in the past half century.
"Rising interest rates in the past two years have caused business failures to soar, with the result that now 11 businesses are failing for every hour of the working day. . . . To allow a group of unelected appointees unilaterally to set such consequential policies in an atmosphere totally removed from the suffering these policies cause would be a dereliction on the part of Congress ."
The key language in the bill introduced yesterday requires that:
" The Federal Reserve shall establish yearly targets, consistent with economic growth and stable prices, for long-term interest rates, and for money and credit aggregates, together with the range above and below such targets they deem appropriate."
The measure would not require that the targets be reached, but the Federal Reserve would have to submit to Congress reports "explaining the reasons for any revisions to or deviations from such targets and notifiying the committees of Congress of the new targets and the objectives and plans for meeting those targets."