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Fed Doesn't Control Long-Term Rates

May 29, 1994

According to leading Democrats ("Furor Grows Over Fed Policy," May 5), the Federal Reserve Board is to blame for higher mortgage and long-term interest rates. I am amazed at the lack of understanding of basic economics in Washington.

The Fed simply doesn't control long-term rates. Investors--tens of millions all over the world--control long-term U.S. interest rates. And as a small member of this group, let me tell these "leading Democrats" exactly why we're out of the bond market.

We have an Administration that has embarked on several curious strategies. One is to drive down the value of the dollar to crisis levels. Investors are just tickled when they wake up to crises in the currency markets.

A second is the unmistakable message sent out recently by this Administration that inflation may not be so bad after all. Dovish Federal Reserve appointments don't impress investors, especially ones who still think that inflation and high unemployment can't coexist.

And the third is this Administration's foreign policy. In the span of 16 months, this nation has become a picture of inaction and uncertainty, a Carter Administration without the morals.

Believe me, investors don't back a loser--or its Treasury bonds.


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