Republicans threaten the rule of the Fed

Republicans threaten the rule of the Fed

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Republicans threaten the rule of the Fed

Republicans from the House of Representatives of the U.S. Congress, frustrated economic stimulus policies of the Federal Reserve and its growing role as a financial regulator, taking new steps to limit the authority of the central bank.

In the Financial Services Committee introduced a bill, which implies a certain course of action in case of change of Fed monetary policy. There are other bills that will reduce the powers of the central bank.

But while the prospects of such a bill in the House of Representatives questionable, and in the Senate, he has no future as the upper house of parliament is controlled by Democrats.

At the same time such a move underscores how will act Republicans , if they win a majority in both houses of Congress in the midterm elections.

At a hearing on Thursday, the chairman of the Committee on Financial Services Jeb Hensargling said the Fed has demonstrated “a radical departure from historical norms of monetary policy.”

Legislative act is the result of a yearlong series of meetings. They were held to review the effectiveness of the Fed on the occasion of the 100th anniversary of the central bank.

If the law is passed, the Fed will need to set interest rates based on clear rules, like the Taylor rule.

Taylor rule determines the necessary amount of incentive (interest rate), which should be reflected in the current economic environment. And the Fed will have to explain their actions in the event that it will deviate from the rules.

In recent years, the Fed is moving toward the Republicans, primarily by adopting clear inflation target in 2012, but the head of the regulator Janet Yellen and other officials have consistently emphasized the need for flexibility.

According to the Taylor rule, for example, short-term interest rates the Fed must now be higher than 1%, while the central bank plans to keep them near zero next year to stimulate the creation of new jobs.

John Taylor said at the hearing that the bill gives the Fed “sufficient flexibility” to change the policy in a crisis.

“I think it will increase transparency and accountability, – he said. – How can anyone object to this?”

Professor of Economics at MIT, Simon Johnson said that the legislation will not make monetary policy more predictable, but instead add to the policy process. According to him, the experts should be able to make decisions, and restrictions will lead to high volatility in the financial markets.

The bill includes a number of other measures to improve transparency, including the quarterly report to Congress and the disclosure of salaries paid employees Fed.

Another pending bill is a document suggesting a greater emphasis in controlling inflation.

The latest deals Fed did not react, but the regulator earlier objected to any ideas, restricting his freedom in terms of interest rate management. Yellen may have to voice their positions as early as next week, when she will be answering questions Republicans in the House of Representatives and the U.S. Senate.

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