Volcker gives agenda for successor
As the potential incoming banking chief was going through his paces on one side of Capitol Hill, the outgoing chief was delivering his swan song on the other side. For the last time in his eight-year stint as chairman of the Federal Reserve Board, Paul Volcker gave his semi-annual assessment before the House Subcommittee on Domestic Monetary Policy. Prodded by questioners, he also gave an agenda of the big issues that the next Fed chairman will face. President Reagan has nominated Alan Greenspan to assume that position.
Mr. Volcker said that the Fed has not changed its policy toward monetary growth since April, when it decided to slow inflation by increasing the amount of financial reserves that banks must hold. In the first half of 1987, the money supply growth fell short of, or was at, the low end of the Fed's target range of 5 to 8 percent a year.
The Fed plans to keep that tight rein on inflation. With the increase in oil prices and the lower dollar, which makes imports more expensive for American buyers, the country is in danger of falling back into inflation. Therefore, Volcker said, the lower targets of monetary growth ``may well remain appropriate'' in the future.
``It's much harder to deal with inflation once it's gotten some momentum,'' he said. ``I think we're in a rather critical period right now, where we've had inflation going up,'' and the potential for people to start building inflation into their expectations, into wages and prices. That's why, he said, possibly the No. 1 priority for his successor is to keep his eye on inflation.
Also high on the agenda is the structure of the banking system. Volcker said the President should not veto the banking bill coming out of Congress for at least two reasons. First, the bill closes the nonbank-bank ``loopholes'' through which commercial companies, like Sears, can engage in some form of banking, something Volcker has wanted to do. ``This is your chance,'' he told the congressmen, ``to lay down the marker'' dividing banking and commerce.
Volcker is also concerned about the ailing savings and loan industry. He supports the plan to allow the Federal Savings and Loan Insurance Corporation to get another $8.5 billion - and thus let regulators shut down some of the most troubled thrifts.
A final priority, he said, is to ``scratch, fight, and complain'' to keep the Federal Reserve Board independent.