Press Releases

Yesterday, the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, led by Chairman Frank Lucas (OK-03), held a hearing entitled, “Revisiting the Treasury-Fed Accord.” Members reviewed the purpose of the Treasury-Federal Reserve Accord of 1951 (Accord) and how this Accord became the standard approach in conducting modern central banking. Members also examined the economic impact of monetizing the debt and fiscal dominance, and if an updated Accord is warranted.

On the Fed’s Independence:

Chairman Lucas said, “In the 81^st Congress, just one year prior, the Joint Economic Committee expressed support for the Fed and Treasury to reach an understanding about the division of their authorities. It was appropriate for Congress to be part of the conversation then, just as it is now. It is my intention for this Congress to similarly express the need for a formal dialogue between the Fed and Treasury on the appropriate boundaries of their authority and where increased communication might bolster the strength, resiliency, and depth of the Treasury market, while reinforcing monetary policy independence. I plan to introduce a resolution to do just that.”

Rep. Marlin Stutzman (IN-03) said, “Folks in Indiana know full well that federal spending is far beyond reasonable levels. The spending not only has severe consequences for everyday Hoosiers but also poses risks to the Independence of the Fed's monetary policy decisions. I'd like to begin by discussing the idea of fiscal dominance. As our government persistently runs deficits and increases our national debt, the government must pay interest to service that debt. Should spending continue on its current pace, investors will eventually demand a higher interest rate to purchase government debt, which as a result—increases the cost of issuing new debt.”

On the National Debt:

Rep. Monica De La Cruz (TX-11) questioned witnesses on the impact of government spending on inflation, to which Mr. Thomas Hoenig, Distinguished Senior Fellow, The Mercatus Center at George Mason University responded, “Well, I think from where we are today, we're going to incur $2 trillion in new debt, and that has to be financed. And that puts strain on the markets and does put upward pressure on interest rates, depending on what the Fed does to intervene, which then risks inflation down the road. So, I think it's mostly going to be harmful in terms of what it does to inflation. And I think that's where the Congress and the Fed and the Treasury should be concerned. And I think ignoring it or saying that we can just divide our activities without a clear message that we're going to control our domestic fiscal deficits, I think is not beneficial in the long run for the American consumer.”

Witnesses Echoed the Work of the Committee:

Mr. Thomas Hoenig said, “My concern is that these Fed actions have left in their wake a less independent central bank, a less accountable market, and, I fear, a less constrained government budgeting process. There is now a deep-seated expectation on the part of the Treasury, Congress, Wall Street, and even some within the Fed, that the Fed has an implicit mandate to intervene as necessary to maintain asset values and a smoothly functioning securities market. The risk is that by embracing this mandate, the Fed also implicitly accepts the tradeoff of higher inflation in assets and consumer prices.”

Dr. Jeffrey Lacker, Senior Affiliated Scholar, The Mercatus Center at George Mason University said, “A modernized Treasury–Fed Accord should restore the clear institutional boundaries that once anchored U.S. financial credibility. The experience following the 1951 Accord, along with the deeper constitutional logic behind limited central bank independence, show how market stability can be enhanced by a disciplined separation between monetary policy and debt management. The ambiguity of the Fed’s policy toward intervention in longer-term Treasury markets risks weakening private market-making and amplifying volatility at a moment when fiscal pressures make the marketability of U.S. debt especially vital. Reaffirming transparent boundaries would strengthen market functioning, reinforce fiscal credibility, and better prepare the United States for the challenges ahead.”

Dr. Jeffrey Huther, Adjunct Professor, Georgetown University said, “The current path of projected deficits, if realized, will eventually lead to Treasury market instability that will force the Fed to intervene. The level of debt at which this instability occurs is unknown. While the Treasury market is lauded for its depth and resiliency, it is not immune to shocks that are inherent in financial markets stemming from human nature, not institutional structure. In the context of fiscal dominance, a shock would mean sharply lower prices for Treasury securities that the Fed sees as risking broader financial instability with adverse consequences for the real economy.”

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