Subcommittee Examines the Federal Reserve’s Monetary Policy
March 16, 2017 -
The Monetary Policy and Trade Subcommittee held a hearing on Thursday to examine how the Federal Reserve has departed from conventional monetary policy. Members heard from a panel of experts who discussed how the Federal Reserve can facilitate an orderly return to a conventional balance sheet and how monetary policies can reliably support economic growth going forward.
“Today’s monetary policy is data-dependent in name only. It is a policy that never tells us what data matter, let alone how they matter,” said Chairman Andy Barr (R-KY). “It is a policy that continues to leave households and businesses scratching their heads about when and where oracles from the Fed’s Eccles Building will turn next. It is a policy that creates uncertainty instead of clarity. It is a policy that has weighed on productivity from its start a decade ago.”
Key Takeaways from the Hearing:
- The Fed’s accommodative monetary policy allowed the Obama Administration to mask necessary budget and spending reforms and compromise the Fed’s monetary policy independence.
- The manner in which the Fed conducts interest rate policy has left households and businesses in a policy fog, uncertain about when and where their efforts can produce the greatest value.
Topline Witness Quotes:
“If the economy begins to improve and the Fed does not withdraw the tremendous reserves it has created from the banking system, rampant inflation will follow. If it does withdraw the reserves quickly, interest rates will rise rapidly. This situation makes economic calculations extremely difficult and makes businesses less willing to invest, especially for the long term. If business owners could fully trust the Fed, this would not be an issue, but we have all been burned too many times to trust the Fed.” - John Allison, Executive in Residence, Wake Forest School of Business, and former Chairman and Chief Executive Officer, BB&T Corporation
“I have seen a more determined effort in the past few months at the Federal Reserve to normalize policy and that is a good thing. But normalization, or transition, is difficult in practice, and at times the pace has been slow and uncertain. With the policy interest rate still below appropriate levels, a key step is to raise the policy rate gradually and strategically.” - Dr. John B. Taylor, Mary and Robert Raymond Professor of Economics, Stanford University