FED Oversight Reform and Modernization Act of 2015
Floor Speech
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Ms. MAXINE WATERS of California. Mr. Chairman, I yield myself 6 minutes.
Mr. Chairman, I rise today in strong opposition to H.R. 3189, a bill that would undermine the Federal Reserve's monetary policy independence, politicize its decisionmaking, curtail its ability to respond to a wide range of dynamic economic data, and weaken its ability to effectively carry out its regulatory responsibilities to promote the safety and soundness of our financial system.
Mr. Chairman, H.R. 3189, the Fed Oversight Reform and Modernization Act, should more appropriately be called the Eliminate the Federal Reserve's Ability to Support the American Economy and Promote Full Employment Act.
While no Federal agency is perfect and should be reflectively shielded from reform, this bill does not reflect a good faith effort to strengthen the Federal Reserve or hold it accountable to its mission, to keep inflation low and stable, and to promote full employment.
Rather, this bill is designed to put monetary policy on autopilot under a strict, rules-based approach subject to reviews and audits by the GAO.
This approach seeks to discourage monetary policymakers from considering the wide range of ever-changing economic data that is relevant to effective decisionmaking and would discourage the Fed from engaging in the types of bold and forceful actions that have been so critical to our economy's recovery over the past 6 years.
As the largest economy in the world that is increasingly interconnected to a vast and complex global economy, the notion that we should be putting blinders on our central bank strikes me as a recipe for disaster. In fact, had the Federal Reserve taken the approach called for in the underlying bill during and in response to the recent financial crisis, economic performance would have been substantially worse.
As Federal Reserve Chair Janet Yellen put it in a letter to congressional leadership earlier this week, had the FOMC been compelled to operate under a simple policy rule for the past 6 years, the unemployment experience of that period would have been substantially more painful than it already was and inflation would have been even further below the FOMC's 2 percent objective.
But the straitjacket approach to monetary policy isn't the only reason to oppose this bill. H.R. 3189 includes a host of provisions that represent the latest Republican effort to block financial regulators from fulfilling their responsibility to promote the safety and soundness of our financial system as part of the Dodd-Frank Act.
In particular, this bill would impose unworkable cost-benefit analysis requirements that are designed to slow new rulemaking to a screeching halt and ensure the few that do get issued are tied up in court.
The bill also requires the Federal Reserve to make public and solicit comments on its stress test scenarios, a move that, while popular with the biggest banks, would undermine the effectiveness of the test, turning this valuable regulatory tool for assessing the health of the financial system into a useless exercise.
Finally, the Rules Committee print adds to the end of H.R. 3189 the text of H.R. 2912, a bill that would establish a partisan commission, with twice as many Republicans as Democrats, to review the Federal Reserve's conduct of monetary policy and recommend changes to its mandate as well as the specific instruments and operational regime to be used in achieving it.
The fact is, the Federal Reserve's current dual mandate and operational monetary policy independence have served the economy well. Such independence ensures that policy decisions are empirically driven rather than motivated by short-term political pressures while its clear objectives allow Congress to hold it accountable.
Operating under the current model, the Federal Reserve played a major role in ending the panic that gripped the financial sector in 2008 and, through its sustained efforts, has supported the creation of more than 13.3 million private sector jobs and cut the unemployment rate in half since the height of the crisis, all while keeping inflation well below the target.
Frankly, I think it is a terrible idea to put those who thought shutting down the government was a good idea and who thought fiscal austerity would grow the economy in a position to micromanage our monetary policy, also.
Finally, I would be remiss if I failed to note that the Congressional Budget Office estimates that this bill will cost $109 million over 10 years by forcing the Federal Reserve to jump through new rulemaking and administrative hoops.
To pay for this cost, the Rules Committee adopted an amendment that would raid $60 billion from the Federal Reserve's surplus account, a buffer that inspires confidence in the central bank itself. Ironically, this is the very same fund that Republicans voted to eliminate just 2 weeks ago.
For all of these reasons, I would urge Members to join me in opposing this terrible legislation that would do enormous damage to our economy and the American people. I can't believe this bill is before us.
Mr. Chairman, I reserve the balance of my time.
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Ms. MAXINE WATERS of California. Mr. Chairman, despite what my colleague on the opposite side of the aisle, Mr. Huizenga, has said about our not knowing what is in the bill, we know what is in the bill, and this Congress should be frightened about what you are attempting to do with establishing this simple monetary policy rule that is unworkable. This is dangerous.
Mr. Chairman, I yield 4 minutes to the gentlewoman from New York (Mrs. Carolyn B. Maloney). She is the ranking member of the subcommittee on Capital Markets and Government Sponsored Enterprises of the Financial Services Committee.
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Ms. MAXINE WATERS of California. Mr. Chairman, I yield myself such time as I may consume.
I cringe at the thought that the documents from the FOMC meeting of 2012 would be released to the Members of Congress. They would cause some volatility in the markets and shake up this country and cause such harm that everybody ought to be alarmed at the thought.
I yield 3 minutes to the gentleman from Illinois (Mr. Foster), a member of the Committee on Financial Services.
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Ms. MAXINE WATERS of California. Mr. Chairman, I
yield myself the balance of my time.
I am going to take the unusual step of reading a letter from Janet Yellen, the Chair of the Board of Governors of the Federal Reserve Bank. I take this unusual step because the letter is so well written and explains in such a profound way why the bill that is before us is dangerous and problematic.
``Dear Mr. Speaker and Madam Leader: I am writing regarding the House of Representatives' consideration of H.R. 3189, the Fed Oversight Reform and Modernization Act''--known as the FORM Act--``The FORM Act would severely impair the Federal Reserve's ability to carry out its congressional mandate to foster maximum employment and stable prices and would undermine our ability to implement policies that are in the best interest of American businesses and consumers. This legislation would severely damage the U.S. economy were it to become law.
``There are a number of harmful provisions in the FORM Act, but the provisions concerning the conduct of monetary policy are especially troubling. Section 2 of the bill would require the Federal Reserve to establish a mathematical formula or `directive policy rule' that would dictate how the Federal Open Market Committee adjusts the stance of monetary policy at every FOMC meeting. The Government Accountability Office (GAO) would be responsible for determining whether the rule adopted by the FOMC met all the criteria in the legislation. Any time the FOMC was judged not to be in compliance with the GAO-approved rule, the GAO would be required to conduct a full review of monetary policy and submit a report to the Congress. Moreover, the GAO would also be required to conduct a full review of monetary policy and report to the Congress any time the FOMC changed its policy rule.
``These provisions are significantly flawed for a number of reasons. Most importantly, the provisions effectively cast aside the bipartisan approach toward monetary policy oversight developed by the Congress in the late 1970s. Under that approach, the Congress establishes the long-run objectives for monetary policy but affords the Federal Reserve a considerable degree of independence in how it goes about achieving those statutory goals, thus ensuring that the conduct of monetary policy is insulated from political influence. This framework is now recognized as a fundamental principle of central banking around the world. The provisions of the FORM Act, in contrast, would effectively put the Congress and the GAO squarely in the role of reviewing short-run monetary policy decisions and in a position to, in real time, influence the monetary policy deliberations leading to those decisions.
``Conducting monetary policy by strictly adhering to the prescriptions of a simple rule would lead to poor economic outcomes. There is no consensus among economists or policymakers about a simple policy rule that is best suited to cover a wide range of scenarios. For example, even during the period known as the Great Moderation, in the 1980s and 1990s, when a simple rule might have been expected to work well, the actual level of the Federal funds rate often diverged substantially from the level prescribed by the reference rule included in the FORM Act. Indeed, for much of this period, monetary policy was actually tighter than what would have been the case under that rule.
``Even more tellingly, no simple policy rule has yet been devised that would adequately address the effective lower bound on the policy rate--a constraint that has been binding in the United States since late 2008. Had the FOMC been compelled to operate under a simple policy rule for the past six and a half years, the unemployment experience of that period would have been substantially more painful than it already was, and inflation would be even further below the FOMC's 2 percent objective. Indeed, a recent study by the Federal Reserve economists suggests that the current unemployment rate would still be above 6 percent and inflation would now be running somewhat below zero, if the FOMC had not taken the actions it did but rather had followed the reference rule and made it clear that it would do so in the future. In other words, millions of Americans would have suffered unnecessary spells of joblessness over this period, generating enormous amounts of personal and collective damage that could have been avoided--and, in fact, was avoided because we had the latitude to use our available tools responsibly and forcefully.
``In addition to allowing the GAO to conduct a review specifically related to the `directive policy rule,' Section 13 of the FORM Act also allows GAO to more broadly review and analyze the monetary policy decisions of the Federal Reserve at any time. This provision would politicize monetary policy and bring short-term political pressures into the deliberations of the FOMC by putting into place real-time second guessing of policy decisions. Such action would undermine the independence of the Federal Reserve and likely lead to an increase in inflation fears and market interest rates, a diminished status of the dollar in global financial markets, and reduced economic and financial stability.
``The provision is based on a false premise--that the Federal Reserve is not subject to an audit. To the contrary, under existing law, the financial statements of the Federal Reserve System are audited annually by an independent accounting firm under the supervision of the Inspector General for the Board.
``These audited financial statements are made publicly available and provided to Congress annually. The GAO may also conduct an audit of the Board's financial statements and of transactions that the Federal Reserve conducts in the course of its lending and other activities. In addition, each week, the Federal Reserve publishes its balance sheet and charts of recent balance sheet trends as well as every security the Federal Reserve holds along with each security's CUSIP number. Moreover, as specified in the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Reserve now releases detailed transaction level information for all open market operations and discount window with a 2-year lag.
``I am concerned about other provisions in the FORM Act as well, including the debilitating restrictions on the Federal Reserve's emergency lending authorities. In the face of a future crisis--where collapse of the financial system is on the scale of the Great Depression or the recent financial crisis--I believe it is essential that the Federal Reserve have the emergency lending powers necessary in those circumstances to support the flow of credit to households and businesses and mitigate harm to the U.S. economy. The FORM Act would essentially repeal the Federal Reserve's remaining ability to act in a crisis. I am also deeply troubled by provisions related to the Federal Reserve's supervisory responsibilities, particularly those that would undermine the strength and effectiveness our stress tests and impede our ability to advocate internationally for standards that are in the best interest of U.S. businesses and consumers.
``Throughout my career and certainly during my many years working with the Federal Reserve System, I have been an advocate for greater openness and transparency. As Chair, I remain committed to these important issues. Accountability and transparency of public institutions are critical in a democratic society. Unfortunately, the FORM Act attempts to increase transparency and accountability through misguided provisions that would expose the Federal Reserve to short-term political pressures. For these reasons, I urge the House not to adopt the FORM Act. The bill would severely impair the Federal Reserve's ability to carry out its congressional mandate and would be a grave mistake, detrimental to the economy and the American people.''
I don't think it could be better stated. I think the letter that I just read from Janet Yellen tells it all. It simply warns us about the danger of this bill. It not only warns us. It does it in such a way that everybody can understand it and would not want to put this economy and this country at such a risky position. I am hopeful that the Members will hear this. We will make copies available to everyone. Vote against this bill.
Furthermore, there is a Statement of Administration Policy from the Executive Office of the President, Office of Management and Budget:
``H.R. 3189 would establish requirements for policy rules, codify blackout periods of the Federal Open Market Committee, establish a cost-benefit requirement for other rulemakings by the Federal Reserve Board, and establish numerous, burdensome reporting requirements for the Federal Reserve Board and its members. The Administration therefore strongly opposes H.R. 3189.
``The Federal Reserve is an independent entity designed to be free from political pressures, and its independence is key to its credibility and its ability to act in the long-term interest of the Nation's economic health. One of the most problematic provisions in the bill would require the Comptroller General to audit the conduct of monetary policy by the Federal Reserve Board and the Federal Open Market Committee. The operations of the Federal Reserve are already subject to numerous audit requirements that ensure it is accountable to the Congress and the American people. The only aspect of the Federal Reserve's operations not subject to audit is its monetary policy decisionmaking, and for good reason. Subjecting the Federal Reserve's exercise of monetary policy authority to audits based on political whims of Members of the Congress--of either party--threatens one of the central pillars of the Nation's financial system and economy, and would almost certainly have negative impacts on the Federal Reserve's work to promote price stability and full employment.
``H.R. 3189 also would impose numerous, burdensome requirements for the Federal Reserve Board rulemaking authorities, including the imposition of a duplicative requirement that the Federal Reserve Board undertake a proscriptive cost-benefit analysis and a post-adoption impact assessment when promulgating rules. When a Federal agency, including an independent agency such as the Federal Reserve, promulgates a regulation, the agency must adhere to the robust substantive and procedural requirements of Federal law, including the Administrative Procedure Act, the Regulatory Flexibility Act, the Paperwork Reduction Act, and the Congressional Review Act, among other statutes. Additionally, Executive Order 13579 encourages independent regulatory agencies to conduct reasoned cost-benefit analysis, engage in public participation to the extent feasible, and conduct a systematic retrospective review of regulations.''
I can't read it all, but if the President was presented with H.R. 3189, his senior advisers would recommend that he veto this bill.
I yield back the balance of my time.
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Ms. MAXINE WATERS of California. Mr. Chair, while I appreciate the spirit of the amendment, which seeks to ensure that the most populous regions of the country have adequate representation within the Federal Reserve system, I am concerned that the amendment does not fully contemplate the implications of adding the additional reserve districts.
For example, the amendment would add a Federal Reserve District headquartered in San Francisco, a city which is already home to a Federal Reserve bank. Furthermore, the current Federal Reserve Bank of San Francisco has a number of branches located throughout the West, including one in Los Angeles, a city which would be home to another Federal Reserve Bank under the gentleman from Florida's amendment.
The amendment also does not address how the new Reserve Banks would participate in the current rotation on the Federal Open Market Committee, a matter which is prescribed by law under section 12(a) of the Federal Reserve Act.
Rather than add an additional Reserve Bank or additional Reserve Banks to the Federal Reserve system, I respectfully submit that the desired effects of this amendment to provide greater diverse range of views across our country could more usefully be achieved without increasing the number of regional Reserve Banks and within the confines of the current system.
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Ms. MAXINE WATERS of California. Mr. Chair, the amendment would, at best, duplicate the Federal Reserve's current policy regarding the disclosure of transcripts and, at worst, falsely imply that the Federal Reserve would be prohibited from exercising its discretion in determining when to release FOMC meeting transcripts in accordance with prudent monetary policy. After all, communication in and of itself is a key monetary policy tool, and it would be unwise to tie the Fed's hands when it comes to using it.
Furthermore, any failure to allow the Federal Reserve to strike the appropriate balance between transparency and the disclosure of potentially market-moving information, particularly at a time of financial stress, would have significant adverse impacts on our economy and could, in turn, have a chilling effect on monetary policy deliberations.
To underscore the fact that this potentially harmful amendment is completely unnecessary, I think it is also worth pointing out that the Federal Reserve is already a leader among central banks in advanced economies when it comes to making its transcripts available to the public.
While the Federal Reserve releases transcripts with a 5-year lag, other advanced economies have adopted requirements to release transcripts after much longer periods. Japan's Central Bank releases transcripts to the public after 10 years, and the European Union releases transcripts after 20 years.
In addition to releasing transcripts to the public, the Federal Reserve employs a range of additional measures to enhance the public's understanding of the Federal Open Market Committee's views and expectations. For example, the Federal Reserve issues a statement following the conclusion of each of its meetings that includes the Federal Reserve's policy decisions and its rationale, includes the vote of each FOMC member, and provides a short summary of any dissenting views.
The Federal Reserve also releases detailed minutes that are released on a 3-week lag following each FOMC meeting. The minutes contain a detailed discussion of the policy deliberations and the range of views that were presented and includes votes on each policy action taken by each FOMC member.
Since 2011, the Chair of the Federal Reserve gives a press conference following each FOMC meeting for which a summary of economic projections is prepared, amounting to four press conferences each year. This provides the opportunity for the Chair to explain her views and respond to questions from the financial press.
In January 2012, the Federal Open Market Committee also published a statement of longer-run goals and monetary policy strategy in which it outlined how it would assess its compliance with statutory mandates to promote full employment and price stability. Subsequently, in September 2014, the Federal Reserve published a statement outlining its policy, normalization principles, and plans.
Finally, the Federal Reserve, as it is required by law, regularly testifies before the House and Senate on monetary policy matters on no less than two occasions a year. Chairman Yellen has made herself available to testify on regulatory matters at the request of Congress.
So, all of this is to say that claims that the Federal Reserve lacks transparency or doesn't communicate its thinking to the public just don't hold up to the facts.
I urge Members to oppose this amendment.
Mr. Chairman, I reserve the balance of my time.
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Ms. MAXINE WATERS of California. Mr. Chair, continuing time in opposition, first, the notion that the Federal Reserve's large-scale asset purchases did not help the economy and job growth is simply false. The forceful and sustained actions that the Federal Reserve took in recent years to bring us out of a recession and into recovery are well-documented and cannot be overlooked.
For instance, the November jobs report showed the economy added a whopping 271,000 jobs in October, pushing the unemployment rate down and, even further, to 5 percent and bringing the total number of private sector jobs created to more than 13.3 million over the past 68 months.
Second, the amendment's implication that the Federal Reserve's monetary policy has added to the U.S. national debt is also demonstrably false. Although raising revenue is not the purpose of monetary policy, as a consequence of the Federal Reserve's actions in recent years, it has generated substantial sums in the hundreds of billions of dollars which has returned to the Treasury. These sums have reduced the deficit, not contributed to it.
Rather than relentlessly attacking the Federal Reserve and taking steps to undermine their independence, all of us really should be thanking them for what they have done to get our economy back on track.
I yield back the balance of my time.
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