Press Releases

House Voting Next Week to Make the Federal Reserve More Transparent and Accountable
The FORM Act (Fed Oversight Modernization and Reform Act) will bring greater economic certainty to consumers, job creators and investors


WASHINGTON, November 13, 2015 -

The House is scheduled to vote next week on legislation designed to improve the economy’s performance by making the Federal Reserve more accountable and transparent.

The bill, the Fed Oversight Modernization and Reform Act (FORM Act) sponsored by Monetary Policy and Trade Subcommittee Chairman Bill Huizenga (R-MI), requires the Fed to choose a monetary policy strategy and communicate that strategy to the public when it makes decisions regarding interest rates and the nation’s money supply.

Notifying the public about the factors that lead the Fed in its monetary policy decisions will reduce economic uncertainty for consumers, investors and small businesses and benefit the economy, says a small business organization.

“Small businesses and entrepreneurs require an environment where monetary policy is sound and stable, and access to capital is affordable and abundant.  So much of what the Federal Reserve does impacts these critical areas. Shedding sunlight on Federal Reserve operations, and requiring regulatory and operational standards consistent with other government agencies are sensible reforms.  These accountability measures will foster greater certainty and stability for our economy,” said Karen Kerrigan, the President and CEO of the Small Business and Entrepreneurship Council, in a statement supporting the FORM Act.

And because the FORM Act allows the Federal Reserve to choose its own strategy – with the power to amend its strategy or depart from it if economic conditions warrant – the bill in no way interferes with the Fed’s independence in setting monetary policy, said Financial Services Committee Chairman Jeb Hensarling (R-TX).

“Making monetary policy more transparent will expand economic opportunity because consumers, job creators and investors will all have more confidence in making financial plans.  The more Americans can understand how the Federal Reserve will act, the better they can plan for the future,” said Chairman Hensarling.

“Today, however, the Fed favors a more unpredictable ‘forward guidance’ approach to monetary policy, which we’ve seen lacks clarity and creates economic uncertainty.  As one former Federal Reserve Bank president said, ‘monetary policy uncertainty creates inefficiency in the capital market…The FOMC preaches that policy is data dependent but will not tell us what data and how.’

“The FORM Act corrects these problems through increased transparency and accountability instead of policy mandates, which would subject the Fed to further political pressures,” said Chairman Hensarling.

“With the Federal Reserve having more power and regulatory authority than ever before, it is imperative to make the Fed more transparent and accountable,” said Chairman Huizenga. “The FORM Act maintains the Fed’s independence by providing the Federal Reserve with the flexibility to design its own monetary policy rule, while requiring the Fed to communicate its reasoning to Congress and more importantly, the American people.  Additionally, the FORM Act ends the current bailout fueled culture by reforming the Federal Reserve’s emergency lending powers for use only when ‘circumstances exist that pose a threat to the financial stability of the United States.’ These necessary reforms will increase transparency and accountability, strengthen our nation’s monetary policy, and help bring the Federal Reserve into the 21st century.” 

To further the principles of transparency and accountability, the FORM Act also requires the Federal Reserve to conduct cost-benefit analysis when it adopts new rules.

The Dodd-Frank Act signed into law five years ago grants sweeping new power to the Federal Reserve to regulate virtually every corner of the financial services sector.  The Fed’s failure to conduct cost-benefit analysis when writing the 60 new federal regulations it was assigned by Dodd-Frank results in excessive regulatory burdens on small banks and small businesses and harms the U.S. economy.

Other reforms included in the FORM Act:

  • Require transparency about the Federal Reserve’s bank stress tests and about international financial regulatory negotiations conducted by the Federal Reserve, Treasury Department, Office of the Comptroller of the Currency, Securities and Exchange Commission, and Federal Deposit Insurance Corporation.
  • Require Fed employees to abide by the same ethical requirements as other federal financial regulators.
  • Clarify the “blackout period” governing when Federal Reserve Governors and employees may publicly speak on certain matters; provide for a more balanced representation of voters on the Federal Open Market Committee (FOMC), and provide additional assurances that the Federal Reserve’s emergency lending powers are used only in emergencies.
  • Require the full FOMC to decide policy rates on excess balances maintained at a Federal Reserve Bank by a depository institution.
  • Remove restrictions placed on the Government Accountability Office’s ability to audit the Federal Reserve, direct the GAO to conduct an audit of the Federal Reserve within 12 months of enactment and require the GAO to report to Congress within 90 days of completion of the audit.

What They’re Saying

“By now I think we can agree that the absence of an official, rules-based cooperatively managed, monetary policy system has not been a great success.  In fact, international financial crises seem at least as frequent and more destructive in impeding economic stability and growth.” – Former Federal Reserve Chairman Paul Volcker

“While we are reducing uncertainty, why not take the mystery out of the Federal Reserve? The Fed can establish a rules-based monetary policy with the ability to deviate from the rules as long as they publicly explain why, using cost benefit thinking in the explanation.” – George P. Schultz, former Secretary of the Treasury, former Secretary of State, former Secretary Labor, and former Director of the Office of Management and Budget.

“At times when the Fed apparently practiced a rules-based monetary policy, the U.S. and global economies grew with low inflation.  When such implicit rules were abandoned, the economy of this nation and many others fell off course.” – Rep. Paul Ryan

“The Fed Reform and Modernization (FORM) Act requires that the Fed describe its rule or strategy for monetary policy. This important reform is based on economic evidence and experience that that monetary policy works best when it follows a clear, predictable rule or strategy.  The Act does not require that the Fed use a particular rule or strategy.  To improve communication the Act requires that the Fed compare its rule or strategy with a well know reference rule, as is common practice.  In no way would the Act compromise the Fed’s independence.” – John B. Taylor, Stanford University economist and former member of the President’s Council of Economic Advisers

“Like most commentators, I feel that the Fed’s discretionary monetary policy is damaging, as evidenced by financial markets that hang on every sneeze by Fed officials. A more predictable policy may add some stability to financial markets, and enable people who are investing in businesses to do so with more confidence.” - John Cochrane, Senior Fellow of the Hoover Institution

Print version of this document