House Panel Debates Bills to Rein In Fed's Authority

WASHINGTON — Republican lawmakers continued their legislative attempts Wednesday to require more transparency from the Federal Reserve Board and force the central bank to more accountable to lawmakers.

The House Financial Services subcommittee on monetary policy and trade held a hearing on two bills designed to rein in the Fed's authority. One bill — sponsored by Rep. Bill Huizenga, R-Mich., the subcommittee's chairman — would require the Fed to do a cost-benefit analysis on new rules, be more accountable to lawmakers on its regulatory policy and reform its emergency lending powers, among other things.

The other legislation — authored by Rep. Kevin Brady, R-Texas — would establish a congressionally appointed commission to study the Fed's lender-of-last-resort status and the use of macroprudential supervision for monetary policy, among other topics.

"Since the enactment of" the Dodd-Frank Act, "the Federal Reserve has gained unprecedented power, influence, and control over the financial system while remaining shrouded in mystery to the American people," said Huizenga in a statement for the hearing.

Much of the hearing focused on how the legislative proposals would make monetary policy decisions more transparent. Huizenga's bill would require the Fed to adopt a policy rule implementing a mathematical formula for charting interest rate policies. It would also subject monetary policy decisions to possible review by the Government Accountability Office.

John Taylor, an economics professor at Stanford University who testified at the hearing, said, "There is an advantage to having a clear, laid out strategy [that] gives the markets a sense of what is going on."

But others testifying questioned whether the Fed's recent actions deserved such a strong legislative response.

"The basic premise … is that something has been seriously amiss with the way the Federal Reserve has carried out the responsibilities Congress has given it. I do not agree with that premise," Donald Kohn, formerly the Fed's vice chairman and now a senior fellow at the Brookings Institution, said in prepared testimony. "In my view, the actions of the Federal Reserve in the crisis and slow recovery were necessary and appropriate."

The varying opinions on whether the Fed needs to be more transparent, however, is not a new debate. Huizenga introduced a similar bill last year, and at a Senate hearing in February Fed Chair Janet Yellen said "Audit the Fed" bills "would politicize monetary policy [and] would bring short-term political pressures to bear on the Fed."

At the hearing Wednesday, Rep. James Himes, D-Conn., agreed that the legislative proposals could go too far. "Many of the proposals being entertained today would erode [Fed] independence," Himes said.

But John Cochrane, a senior fellow at the Hoover Institution who testified before the panel, suggested the bills could in fact strengthen the Fed's independence. Without clear rules about when the central bank is accountable to Congress, he said, the Fed may feel indirect scrutiny about everything it does.

"The Fed worries a lot about Congress looking over its shoulder so by establishing a structure, a set of rules of what you expect from the Fed and what you want them to do and what you don't expect them to do that is the kind of deal that allows them to exercise the needed independence on some things and limits them from going out to other things," Cochrane said.