Last week, the committee approved legislation – the Fed Oversight Reform and Modernization (FORM) Act – that would require the Fed to more transparently communicate its monetary policy decisions to the American people. The bill, sponsored by Monetary Policy and Trade Subcommittee Chairman Bill Huizenga (R-Mich.), passed the Financial Services Committee 33-25.
“Our economy would be healthier if the Federal Reserve were more predictable in its conduct of monetary policy and more transparent about its decision-making. Today we’re merely left with so-called ‘forward guidance,’ which unfortunately remains amorphous, opaque and improvisational, and leaves hardworking taxpayers uncertain as they attempt to plan their economic futures,” said Financial Services Committee Chairman Jeb Hensarling (R-Texas). “History – not theory, but history – shows that when the Fed follows a monetary policy strategy of its own choosing and transparently communicates that strategy to the rest of us, the economy performs better and more Americans get to wake up in the morning and go to work. The FORM Act protects the Fed’s independence to chart whatever monetary policy course it deems appropriate, but it has to give the American people a greater accounting of its actions.”
“With the Federal Reserve having more power and responsibility than ever before, it is imperative the Fed changes its opaque structure and becomes more transparent and accountable to the American people,” Huizenga said. “The Fed’s recent high degree of discretion and its lack of transparency in how it conducts monetary policy demonstrate that not only are reforms needed, but more importantly that reforms are necessary. We need to modernize the Federal Reserve and bring it into the 21st
Among other reforms, the FORM Act would:
- Require the Fed to communicate how its policy choices compare to a benchmark rule
- Conduct a cost-benefit analysis when it adopts new rules
- Require transparency about the Fed’s bank stress tests and international financial regulatory negotiations conducted by the Fed, the Treasury Department and other agencies
- Require the Fed to disclose the salaries of highly paid employees and require Fed employees to abide by the same ethical requirements as other federal financial regulators
The House Financial Services Committee is calling for greater transparency and accountability from the Federal Reserve.