Washington, D.C. - Today, U.S. Congressman Kevin Brady (R-The Woodlands) made the following statement at the Joint Economic Committee hearing with Paul Volcker, Former Chairman of the Federal Reserve.

“It is a pleasure to join in welcoming the witnesses before us today.  The recent financial turmoil and the consideration of appropriate responses are key concerns of policymakers. 

“I would also like to express my appreciation for the service of Paul Volcker as Federal Reserve Chairman.  Mr. Volcker was appointed by President Carter in 1979 to deal with a serious and growing inflation problem that was wreaking havoc on the economy.  The magnitude of the problem can be seen in a number of economic statistics from 1980. 

“For example, in 1980 inflation as measured by the consumer price index was 13.5 percent.  High inflation also pushed interest rates up, with mortgage rates well over 10 percent and rising.  A recession caused GDP to decline in 1980, while unemployment averaged 7.1 percent for the year.  With inflation and unemployment both rising, the notion that higher inflation could lead to a lasting reduction of unemployment was finally discredited.  

“As Fed Chairman, Mr. Volcker had the unenviable task of sharply reducing inflation and restoring price stability, thereby laying a foundation for sustainable economic growth.  The Federal Reserve has maintained the policy of price stability since the early 1980s, leading to an era of low inflation, low interest rates, and low unemployment.  The economic growth of the last 25 years would not have been possible without the cornerstone of price stability laid down under Volcker’s tenure.  

“More recently, there have been concerns about whether inflation may be a rising threat to future economic growth.  There has also been criticism that Federal Reserve policy in 2003 and 2004 was too easy, and may have contributed to the housing bubble and resulting debacle in mortgage backed securities and related investments. 

“In addition, a variety of new financial instruments have been created generating risks that were poorly understood even by the most sophisticated bank executives on Wall Street.  As a result, after the bubble burst, banks have had to make massive write-downs.  In response, the Fed has loosened monetary policy and resorted to a series of innovations and extraordinary actions, including the rescue of Bear Stearns last March amidst serious distress in the financial markets. 

“Financial innovation and the recent financial turmoil have made clear the need for financial regulatory reform.  The issues are very complex, and the debate about regulatory reform will likely go on for many years.”