financialservices.house.gov

Cmte Financial Services (R)
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WEEK IN REVIEW

Washington, Jul 17 -

Committee Focuses on Monetary Policy and the Economy

The Federal Reserve’s lack of transparency and accountability and the state of the U.S. economy were the main topics members addressed at Wednesday’s Financial Services Committee hearing with Federal Reserve Chair Janet Yellen

"Following a monetary policy convention or rule of the Fed’s own choosing, with the power to amend it or deviate from it at the Fed’s own choosing, in no way interferes with the Fed’s monetary policy independence. Accountability and independence are not mutually exclusive concepts," said Chairman Jeb Hensarling (R-TX) in his opening statement. "Dodd-Frank confers sweeping new powers on the Fed to regulate and control virtually every corner of the financial services sector of our economy, completely separate and apart from its traditional monetary policy role. Yet too often, the Fed appears to shield these activities from public view and improperly cloaks them behind monetary policy independence."

Rep. Robert Hurt (R-VA) made similar points. "Historically, when the Fed has followed a rules-based approach, these periods have experienced strong economic performance and strong employment."

Rep. Scott Tipton (R-CO) told Chair Yellen how the Dodd-Frank Act is harming local communities and small financial institutions. “At home our people are feeling the pain of bad policy that’s come out of Dodd-Frank. What are you going to be doing at the Fed to alleviate this?” he asked.

“Well, we are very focused on community banks,” Chair Yellen replied.

“That’s what they’re worried about,” responded Rep. Tipton.

Rep. Keith Rothfus (R-PA) spoke to Chair Yellen about the nation’s struggling economy. “This month marks five years since the enactment of the Dodd-Frank Act. At the signing ceremony, President Obama proclaimed that the law would lift our economy and lead all of us to a stronger, more prosperous future. Yet since that time, the law has resulted in some 400 new government mandates which research has shown will reduce gross domestic product by $895 billion over the next decade – or $3,346 for each working age person.”

Rep. David Schweikert (R-AZ) focused his comments at the hearing on how the Fed’s highly accommodative monetary policy has exacerbated our spending-driven debt. “My great fear is current monetary policy ultimately emboldens us to engage in bad fiscal policy – and we’re going to pay a price for that. I think that future, particularly if we keep seeing the revisions on our GDP growth, we may have to deal with this sooner than later.”

Rep. Bruce Poliquin (R-ME) also focused on the nation’s spiraling debt. "I was a state treasurer in Maine and I can tell you that high levels of public debt caused by long periods of deficit spending can do great damage to our economy because we need to pay the interest on that rising debt, therefore, we're not able to spend it to build roads, and bridges, and educate our kids," added Rep. Poliquin.

Subcommittee Calls for Transparency and Accountability at the Federal Reserve

The House Financial Services Subcommittee on Oversight and Investigations held a hearing on Tuesday to examine the Federal Reserve’s lack of transparency and accountability.

While the powers of the Federal Reserve significantly increased under the Dodd-Frank Act signed into law five years ago this month, its level accountability and transparency have not.

In its coverage of the hearing, The Hill reported that “Republicans made the case Tuesday that the Fed’s insistence on political independence serves as a shield from oversight and policy changes from lawmakers.”

“While the Fed’s purview and power continues to grow, opacity reigns supreme within its walls. It is a veritable fraternity where silence is golden, and no one, not even Congress, is allowed to ask questions. This is true not only of how it conducts monetary policy, but also of its internal processes,” said Chairman Sean Duffy (R-WI).  “The Fed’s clamor for ‘independence’ is the underpinning of its argument for circumventing any Congressional accountability. Markets are left in the dark almost as much as Congress. Unless, that is, you are one of the lucky, well-capitalized firms that can afford inside, non-public information into the black box that is the Fed.”

“Over the last five years the Federal Reserve system’s influence over the economy has grown through the development of new rules and requirements for our financial institutions, with little involvement or consultation by Congress,” said Subcommittee Vice-Chairman Mike Fitzpatrick (R-PA).

Paul H. Kupiec of the American Enterprise Institute testified before the Subcommittee that the Federal Reserve “routinely acts as if its independence on monetary policy matters shields it” from accountability and transparency on other matters, including “congressional inquiries regarding internal investigations. Congress must mandate greater transparency.”

“The Federal Reserve played a starring role in both creating the financial crisis and in its response. Despite that role and the Fed’s numerous failings, Dodd-Frank largely expanded its responsibilities,” said Dr. Mark Calabria of the Cato Institute, who appeared as a witness at the hearing.  “Without reform, including greater accountability and transparency, the Federal Reserve is almost certain to continue its pattern of inflating asset bubbles, in the false hope such will create wealth and jobs.”

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