by Sarah Curry
Director of Fiscal Policy Studies
The House Financial Services Oversight and Investigations Subcommittee held a hearing today to examine the lack of transparency and accountability at the Federal Reserve. For each congressional committee meeting there are experts called into testify on the topic. For this committee, two fellow SPN think tanks were represented, the American Enterprise Institute and the Cato Institute. Here is a press release from the subcommittee along with quotes from these two representing think tanks.
The powers of the Federal Reserve significantly expanded under the Dodd-Frank Act signed into law five years ago this month. Dodd-Frank grants the Fed the authority to regulate much of the American economy well beyond the central bank’s originally conceived mandate to promote the goals of maximum employment, stable prices, and moderate long-term interest rates.
“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,” said Subcommittee Chairman Sean Duffy (R-WI). “This is true not only of how it conducts monetary policy, but also of its internal processes. 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.”
- As its power over the American economy grows, the Fed’s exercise of its newly granted powers prompts questions about whether the Fed is accountable to Congress, the Judiciary, and ultimately the American people.
- The Fed’s failure to comply with a congressional subpoena is a stark example of its lack of accountability and aversion to congressional oversight. The Fed has no legal basis for its refusal to comply with the subpoena.
- Transparency and accountability at the Fed would be greatly improved if the Fed adopted a rules-based approach to monetary policy. A rules?based monetary policy would be more predictable, transparent, easier for the Fed to communicate, and easier for market participants to understand.
Topline Witness Quotes
“The Fed is the most opaque of the ‘independent’ Federal financial regulatory agencies. It sets its own accounting standards that are inconsistent with generally accepted accounting practices for financial institutions and it routinely acts as if its independence on monetary policy matters shields it from disclosing information on its operations including staff salaries, benefits, hiring practices and Congressional inquiries regarding internal investigations. Congress must mandate greater transparency.” – Dr. Paul H. Kupiec, Resident Scholar, American Enterprise Institute
“In sum, while changes at the Fed—such as the establishment and announcement of a numerical inflation goal— have increased transparency and accountability in recent years, reluctance to establish and announce a strategy to achieve this goal has created a countervailing trend. Requirements for the Fed to report its strategy for its policy instruments and other procedural reforms are needed to address the resulting lack of transparency and accountability.” – Dr. John Taylor, Professor of Economics, Stanford University
“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. Along with our flawed mortgage finance system, our monetary regime remains one of the unaddressed structural flaws behind the crisis. 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. Given the current stance of monetary policy, the need for reform is particularly urgent, if not perhaps a little too late.” – Dr. Mark Calabria, Director of Financial Regulation Studies, Cato Institute