Rep. Kevin Brady hopes that significant reform of the 100-year-old Federal Reserve may be within reach.
Brady, a Republican who represents a Houston-area district, would be one of the key lawmakers in an effort to reshape the central bank in the House. He is the top House member on the Joint Economic Committee, and in that role has developed a number of possibilities for overhauling the way that the Fed controls the money supply and affects the cost of credit in the U.S.
The possibility of change coming to the Fed is as realistic now as it has been in years, with the Senate Banking Committee having passed a banking reform package that would make several changes to the operations of the central bank.
“This debate is long overdue,” Brady says in an interview in his office.
Brady has introduced one item of legislation, the Sound Dollar Act, which would limit the Fed’s discretion in setting monetary policy, crimp its ability to buy securities other than Treasury bonds, and move power away from the Board of Governors led by Chairwoman Janet Yellen in Washington.
He also plans to introduce, with fellow Texan and Financial Services Committee Chairman Jeb Hensarling, a bill to set up a Centennial Monetary Commission.
The commission would not prescribe any particular reforms, but would have a debate on the Fed’s role for its next 100 years. The central bank was created by the Federal Reserve Act of 1913.
The bipartisan commission would allow for a debate on the Fed, Brady said, and examine a range of policies that it could adopt. Among those are dropping the Fed’s “dual mandate” of promoting price stability and full employment to focus on just price stability, and examining the possibility of a “modified modern gold standard.” The commission also could consider having the Fed target a nominal level for the gross domestic product, a radical shift that has gained traction among top economists in recent months.
One of Brady’s top concerns is “the Washington-New York connection, which tends to dominate” monetary policy, a worry he detailed in a Wall Street Journal op-ed last week.
One possible reform includes making all 12 regional Fed bank presidents, rather than a rotating cast of five, permanent voting members on the monetary policy committee.
Nevertheless, he acknowledges that Wall Street bankers become concerned when Congress talks about touching the Fed, and seeks to distinguish himself from the anti-Fed rhetoric of former Texas Rep. Ron Paul.
The other obstacle to Fed reform is that many members of Congress are not concerned with the workings of the central bank, which usually is not a topic that swings votes.
But more have taken an interest in the wake of the financial crisis, Brady argued, especially as the Fed has maintained a zero interest rate target stretching into a seventh year. The central bank “reacted, I think properly during the crisis,” by acting as lender of last resort to the banking system, Brady said, “but then after that they went on this stimulus spree that still hasn’t ended. And that’s what has caught most members’ eyes.”
Also weighing in Brady’s favor is the possibility of Senate Banking Committee Chairman Richard Shelby’s reform package moving forward. The bill would, among other things, call for a commission for restructuring the Fed and subject candidates for president of the powerful Federal Reserve Bank of New York to presidential nomination and Senate confirmation. Currently, the president is chosen by the New York Fed’s directors.
Shelby said Tuesday that talks about advancing the package in the full Senate were ongoing.
Hensarling has made Fed reform a focus in the first six months of the 114th Congress.
“I, for one, believe Fed reforms are needed, and I for one believe Fed reforms are coming,” Hensarling told Yellen during a hearing in February.
Another problem for Fed reform is the packed congressional agenda that needs to be fulfilled before the 2016 presidential election crowds the schedule, leaving little time for Fed legislation. But Brady said he is optimistic something could be done this year or next. “In this recovery, the Fed’s got Wall Street roaring, but mainstream middle-class families, they’re really paying the price.”
