Too Important to Politick With : OK, it’s stuffy--but the Fed provides needed, independent guidance

House Banking Committee Chairman Henry B. Gonzalez wants to change how things are done at the Federal Reserve. The Texas Democrat is launching the biggest effort in three decades to revise laws that govern the Fed, the powerful, independent institution that sets the nation’s monetary policy.

For most of us, Fed policy hits home mainly in the interest we earn on money saved and the interest we pay on borrowed money.

Gonzalez proposes to change how the central bank’s officials are appointed and how they conduct meetings and release information. A major problem is that he wants the 12 presidents of the regional Federal Reserve banks, now named by each bank’s board of directors, to be appointed by the President and confirmed by the Senate.

Five of these presidents sit on the Fed’s principal policy-making body, the Federal Open Market Committee. The other committee seats are held by seven governors of the Federal Reserve Board, who are already appointed by the President for a 14-year term.

The Fed is not perfect, but wholesale changes are not needed now. Moreover, those Gonzalez has proposed could compromise the Fed’s independence of judgment at a time when the United States is moving into the uncharted territory of a vastly expanded global marketplace. Fed Chairman Alan Greenspan argues that altering the central bank would be “a major mistake” that puts “the economy at risk.”

The legislation that Gonzalez is proposing would politicize the Fed, which should be insulated from such pressures. Political considerations do not make for good economic policy over the long haul.

Certainly there are those who differ with the Fed’s usually conservative--indeed, at times overly cautious--policies. Its tightfisted, inflation-fighting bent has been blamed for slow economic growth. But the Fed’s current policies are appropriate in today’s low-inflation environment. Cheaper money may be gradually having a positive impact: Two banks have cut their prime lending rates to a 21-year low of 5.5%. Construction starts in September hit their highest level in 3 1/2 years.

Gonzalez does have at least one valid point: Greater diversity within the Fed is needed. Even Greenspan concedes that. Only one of the 12 regional presidents is a woman, and none are minorities. That the Fed can--and should--rectify. There are plenty of qualified women and minority members out there.