According to many conservatives in Congress, it’s time to yank the Fed’s chain. They argue a too-independent U.S. central bank has cozied up to the big banks and is undermining historic American public policy. Therefore, several Republican legislators recently introduced a Fed oversight bill in the House that would severely limit the independence of the central bank. However, even if the criticism is true, that does not mean this bill would help Federal Reserve policy.
Related to this, the U.S. House of Representatives approved legislation on Thursday that would force the Federal Reserve to set interest rate policy based on a mathematical rule. Analysts point out the bill will not likely become law given the Senate already rejected a similar proposal and it also faces a White House veto threat.
The House of Representatives approved the Fed Oversight Reform and Modernization Act in a 241 to 185 vote on Thursday afternoon with near unanimous Republican support.
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The new Fed oversight bill males clear the suspicion many Republican lawmakers hold for the U.S. central bank, which according to many mainstream economists played a key role in stabilizing the global economy during the 2007-09 recession.
More on new Fed oversight bill
The new Fed oversight bill now moves on to the Senate where Democrats can hold up most legislation even though they are in the minority. Even so, the proposed legislation has led to Fed policymakers lobbying strongly against it.
Chair of the Federal Reserve Janet Yellen commented earlier this week that passing such a law would lead to damage to the U.S. economy and hurt Fed independence. The White House has said it opposes the bill because the new rules would hurt the Fed’s ability to fight recessions in the future.
The new policy rule called for under the Fed oversight bill would require the central bank to move interest rates up or down based on specific economic indicators such as the jobless rate and inflation figures. All Fed decisions would also be public, and any deviation from the policy rule would result in a congressional audit.
“If the Federal Reserve explained to the public how it made its decisions … families could better plan for the future,” Speaker of the House Paul Ryan, a Republican, commented in the discussion of the proposed legislation.