Forbes Says Fed Doesn't Get It, Opposes Interest Rate Increase
Washington, Aug. 20 (Bloomberg) -- U.S. Republican presidential hopeful Steve Forbes says the Federal Reserve shouldn't raise interest rates when it meets next week.
''The Fed should back off the tightening they've been intermittently administering the last 18 months,'' Forbes said in an interview. ''The Fed is still prey to the fallacious notion that prosperity causes inflation. And inflation is not there.''
Forbes is advocating supply-side economic policies in his campaign for president and has been criticizing Federal Reserve Chairman Alan Greenspan. Campaigning in Iowa earlier this month, Forbes said the Fed is partially to blame for the collapse in commodity prices that has ruined parts of the U.S. farm economy. Worse, Forbes says, the Fed is now trying to slow the U.S. economy at a time when deflation is still a greater risk that inflation.
''The Fed is threatening to slow the economy in order to fight inflation,'' he said. ''The fed is fighting the last war. . . . They have not been meeting the needs of the market for increase liquidity.''
U.S. consumer prices rose 0.3 percent in July, mainly because of rising gasoline prices. The core rate excluding energy and food prices rose only 0.2 percent. The CPI is on track to rise to 2.4 percent this year.
Meeting Next Week
The Fed's policy-making Open Market Committee is widely expected to raise interest rates on overnight loans to banks when it meets next on Aug. 24. After easing rates to boost international liquidity in the wake of the Asian financial crisis, the Fed began tightening again with a quarter point increase on June 30.
Forbes points to the plunge in gold prices over the last two years as evidence Fed policy is all wrong.
''It's the purist monetary commodity out there,'' he said. ''You don't eat it. You can't burn it. You can't destroy it.'' Gold has dropped to $258 per ounce from $375 two years ago.
''The danger is that as the fed tightens up, (it) succeeds in slowing the economy,'' Forbes said. ''They clearly don't have a real compass. It's all on the gut of Greenspan and his fellow governors.''
Greenspan's term expires in June 2000 and Forbes said that if it were up to him, Greenspan would probably not be re- appointed.
''I would have a heart-to-heart talk about this wacky notion that prosperity causes inflation. And if he didn't have a change of heart I'd get a new chairman,'' Forbes said.
One potential candidate for the job Forbes likes is Empower America founder Jack Kemp.
Forbes placed second in a straw poll in Iowa Aug. 14. The Republican party event was a closely watched test of Republican's organizational strength. After five weeks of campaigning in the state and a $1 million television advertising buy, Forbes said his popularity is moving up in Iowa according to private and public polls.
''I quite heartened,'' he said.
Nationally, Forbes still lags behind other Republicans. Texas governor George W. Bush continues to lead with 61 percent according to a USA Today/CNN/Gallup Poll taken Monday through Wednesday. Forbes came in fifth among Republicans with 4 percent. |
