Federal Reserve Chairwoman Janet Yellen issued a stark warning Tuesday about a Fed reform bill the House is set to consider this week, saying the legislation would “severely damage” the economy.
In a letter to congressional leaders, Yellen said the Republican-backed Fed Oversight and Modernization Act would “severely impair the Federal Reserve’s ability to carry out its congressional mandate to foster maximum employment and stable prices and would undermine our ability to implement policies that are in the best interest of American businesses and consumers.”
Yellen objected to a number of provisions in the bill, but said the measure relating to monetary policy was “especially troubling.”
The provision would require the Fed to spell out a rule for its monetary policy and to testify before Congress and face a Government Accountability Office audit if its decisions varied from the rule at any point. The requirement reflects Republicans’ concerns that the Fed has conducted monetary policy in an arbitrary and confusing manner since the 2008 financial crisis.
Yellen argued that no simple rule could capture the complex decisions the Fed faces at different points and that the requirements would introduce short-term political pressures into the decision-making process.
The legislation was sponsored by Rep. Bill Huizenga, R-Mich., the chairman of the Financial Services Committee subcommittee on monetary policy, and passed the committee in July. It is expected to received a vote in the House this week.
Financial Services Committee Chairman Jeb Hensarling, R-Texas, brushed off Yellen’s concerns, saying in a statement provided by his staff that “no Washington bureaucracy has ever asked Congress to make them more accountable and transparent, and the Fed is no different.”
Hensarling added that the legislation would increase the Fed’s accountability and transparency to keep pace with the expansion of the Fed’s monetary policy efforts and regulatory powers that has taken place over the course of the seven years since the financial crisis.
In addition to requiring the Fed to spell out a rule explaining its decisions on interest rates and monetary policy decisions, the legislation would take a number of other steps to bring the central bank further under Congress’ watch. It would require cost-benefit analysis when the Fed considers new regulations, subject the Fed’s monetary policy decisions to GAO performance audits, rearrange the voting structure of the Fed’s monetary policy committee, curb the Fed’s ability to offer bailouts to financial firms, and update the ethical rules for Fed regulators who might go into the private sector.
The bill on Tuesday received the endorsement of the conservative group Heritage Action, which said that voting yes on the legislation was a “key vote” on the scorecard it uses to compare lawmakers.
