Statement by Thomas M. Hoenig, President, Federal Reserve Bank of Kansas City, before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, March 10, 1993 - Statements to the Congress - Transcript

Federal Reserve Bulletin, May, 1993

Inflation is likely to continue to decline in 1993. With the unemployment rate expected to fall gradually through the year--to 6.9 percent in the fourth quarter--wage pressures will remain modest. Wage moderation, therefore, should help dampen inflation further. I expect consumer price index inflation to decline to about 2.8 percent in 1993 on a fourth-quarter over fourth-quarter basis.

Given this economic outlook, I believe the current stance of monetary policy is appropriate. Past monetary policy easings--which I supported last year as a voting member of the Federal Open Market Committee--have contributed to the improvement we are seeing in interest-sensitive sectors, such as housing and investment.

I think we all agree that the goal of monetary policy is to promote maximum sustainable growth over time. In the near term, Federal Reserve policy should be geared toward fostering a solid expansion, thereby encouraging job growth and the investment spending needed to spur the economy's potential growth rate. But just as important, and consistent with this goal, the Federal Reserve must work toward ensuring an environment of price stability. Low inflation is a prerequisite to an efficiently operating economy and to the achievement of maximum growth over time.

For the foreseeable future, the Federal Reserve will need to monitor a wide range of information in conducting monetary policy. As you have heard from Chairman Greenspan, the monetary aggregates, in particular, will probably not be as informative as in the past. Relationships among the aggregates and the economy are changing as more lending and borrowing are taking place outside the depository sector. Indeed, fundamental changes in credit markets are under way worldwide. Thus, in assessing the state of the economy and the stance of monetary policy, we will monitor a wide range of financial and economic indicators--in the Tenth District, nationally, and internationally. And monetary policy will be responsive and flexible in the face of a rapidly changing and challenging economic environment. (1.) The attachment to this statement is available from the Federal Reserve Bank of Kansas City, Kansas City, MO 64198-0001.