At today’s full committee hearing to discuss legislation purported to “reform” the Federal Reserve, Congresswoman Maxine Waters (D-CA), Ranking Member of the House Financial Services Committee, expressed serious concerns with the proposal’s impact on the Fed’s ability to promote growth, stabilize the economy and take decisive action to avoid an economic collapse.
Citing provisions within the bill that would prescribe monetary policy based on a rigid set of circumstances and factors, the Ranking Member pointed out that the legislation would undermine the independence of the Fed, shake public confidence in its decision making and create unnecessary uncertainty in monetary policy. Further, Waters blasted the bill’s so-called “cost-benefit” provisions; new administrative burdens that will undercut the Fed’s effectiveness by subjecting its rules to endless litigation that would drain resources and impede its ability to guard against risks to our financial system.
Her full statement is below.
“Thank you, Mr. Chairman.
Today, under the guise of ‘reform,’ my colleagues on the other side of the aisle have put forth legislation that will cripple the Federal Reserve’s ability to promote growth, stabilize the economy and, in times of extraordinary crisis, take decisive action to avoid an economic collapse.
This legislation is a concession to opponents of the Dodd-Frank Wall Street Reform Act, by making the Fed’s rulemaking more tedious, more expensive and subject to endless legal challenges by those who do not agree with its decisions.
Unfortunately, this proposal follows a Republican roadmap we have seen too often on this Committee. First, find a regulator charged with holding Wall Street accountable or rooting out the risky behavior that led to the worst economic crisis in 80 years. Next, claim that regulator lacks ‘transparency’ or ‘accountability’ – and therefore must be ‘reformed.’ Finally, push legislation purported to address these issues – through unnecessary obstacles like cost-benefit analyses, new rules, and GAO audits, all of which are carefully designed to gut the agency’s ability to do its job.
We’ve seen this play out with legislation impacting the Consumer Financial Protection Bureau, the Securities and Exchange Commission and the Commodities Futures Trading Commission – cops on the beat that protect average Americans – and our economy – from bad actors in the financial system. Today, Republicans take aim at the Federal Reserve – which played an integral role in stabilizing the economy at a time of intense crisis, and which has continued to play an essential role in growing our economy and promoting full employment.
When the crisis hit, the Federal Reserve challenged conventional thinking on the limits of monetary policy – and appropriately took quick and decisive action that kept our nation from slipping into a depression.
But the legislation we consider today seeks to prevent the Federal Reserve from taking such innovative action in the future – creating rules that would prescribe monetary policy based on a rigid set of circumstances and factors, ignoring the best judgment of experts.
Mr. Chairman, the Fed’s Federal Open Markets Committee contains many of the nation’s most respected economists from across the nation. Its Governors of the Board are subject to democratic accountability through the process of Senate confirmation – and the overwhelming majority were confirmed by the Senate with bipartisan support. But this legislation would discount the experience, judgment and discretion of these experts, instead putting decisions related to inflation and employment on ‘auto-pilot’ based upon a set of abstract factors. If the Federal Open Markets Committee did deviate from the rule, the legislation requires the Government Accountability Office to conduct a costly and time-consuming audit – one that would undermine the independence of the Fed, shake public confidence in its decision making and create unnecessary uncertainty in monetary policy.
Such a process needlessly politicizes the Fed’s decision making, compromises its role as a pillar of the global financial system, and – ironically – creates more market volatility, not less.
Recently, Donald Kohn – 40-year veteran of the Fed, former Vice Chairman, and George W. Bush appointee – expressed his concern with this approach, stating, ‘I don’t think this is a good idea. I am highly skeptical that adhering to a pre-conceived rule will be appropriate to achieving the Fed’s objectives under many circumstances.’
In addition, this legislation brings back the time-honored Republican tactic of ‘cost-benefit analysis,’ imposing heavy administrative hurdles and new litigation risks that will significantly impair the Fed’s ability to do its job in a timely manner. Like efforts with other regulators, this provision allows Wall Street to tie up the Fed’s rulemaking in endless litigation, draining resources and impeding its ability to guard against risks to our financial system.
Mr. Chairman, this legislation does nothing to promote economic growth, create jobs, or ensure a more stable financial system. In fact, it enshrines a regulatory policy that lets bad actors run amuck while regulators waste time dithering with audits and frivolous lawsuits. And it does so at a time when – post-Dodd-Frank – we’ve asked, and need, the Fed to do more than ever before.
Thank you, I look forward to the witnesses’ testimony.”