Federal Reserve Board Governor Jerome H. Powell, expressed
concern over three congressional proposals that would "place new limits on
the Fed's ability to respond to future crises" in remarks he made in the Brendan
Brown Lecture at the Catholic University of America, Columbus School of Law, He
said the "troubling proposals" would subject monetary policy to undue
political pressure.
Bills criticized.
Powell explicitly criticized two bills now pending in Congress, implying that
they are based on a misunderstanding of reality and predicting they would
subject the Fed’s monetary policy decisions to damaging political pressure. Powell
focused his criticism on the Federal Reserve Transparency Act, sponsored in the
Senate by Sen. Rand Paul (R-Ky) as S. 264 and in the House by Rep. Thomas
Massie (R-Ky) as H.R. 24. However, his remarks constituted a broad, spirited
defense of the Fed’s actions during the recent financial crisis and its current
accountability, transparency, and independence.
Fed’s crisis
response. According to Powell, the Fed’s use of a low federal funds rate,
forward guidance on its intent to keep the rate low, and longer-term Treasury
debt and agency securities purchases to keep interest rates low and stimulate
the economy were necessary responses to an unprecedented financial crisis. The
Fed’s strategy worked, he asserts, and the risks some critics warned of have
not materialized.
Fed independence.
Perhaps more than anything else, though, Powell is concerned over proposals
that would reduce the Fed’s independence. He says that one of these proposals,
which he termed “Audit the Fed,” would have few benefits but clear and
significant risks. The audits being sought would not be financial audits, as
these already are performed; rather, according to Powell, they would “examine strategy, judgments and
day-to-day decisionmaking.” Since the Government Accountability Office is
charged with making recommendations to Congress after its audits, this would risk
inserting the GAO into monetary policy.
Independence from political pressure is necessary, Powell
says, as experience has shown that elected officials often want easy-money
policies that offer short-term benefits regardless of the risk of longer-term
harm.
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