WASHINGTON -- A group of Nobel Prize winning economists and former senior economic policy officials announced their support for House-passed reforms that would make the Federal Reserve more accountable and transparent.
The House approved the Fed Oversight Reform and Modernization Act (H.R. 3189, the FORM Act) in November. Among its reforms, the bill requires the Federal Reserve to generate a monetary policy strategy of its own choosing in order to provide added transparency about the factors leading to its monetary policy decisions.
“This important reform would lead to more predictable rules-based monetary policy. It is based on evidence and experience that monetary policy works best when it follows a clear, predictable rule or strategy. A rule reduces uncertainty by giving the public information about future policy actions,” the group of distinguished economic policy leaders states in a statement released on Wednesday. “The legislation does not chain the Fed to any rule, and certainly not to a mechanical rule.”
“In no way would the legislation compromise the Fed’s independence. On the contrary, publically reporting a strategy helps prevent policy makers from bending under pressure and sacrificing independence. It strengthens independence by reducing or removing pressures from markets and governments to finance budget deficits or deviate from policies that enhance economic stability.”
Federal Reserve Chair Janet Yellen will appear before the House Financial Services Committee today to discuss monetary policy and the state of the economy.
In an interview on CNBC this morning, Committee Chairman Jeb Hensarling (R-TX) said “the closer we have come to a rules-based monetary policy, that’s more closely associated with positive economic growth as opposed to the fits, the stops, the starts.”