COLUMN: Transparency Needed at Federal Reserve
American consumers and investors deserve certainty to plan ahead to make the best economic decisions for their families and their future. The U.S. Federal Reserve functions as the nation’s central bank and sets monetary policy that impacts every American and has enormous consequences for our economy. Since the 2008 financial crisis, the Federal Reserve has engaged in interventionist policies that have resulted in today’s sluggish recovery and public uncertainty regarding the Fed’s decision-making.
The Dodd-Frank Act has only increased the already-powerful role of the Fed in the U.S. economy, with broadened emergency lending authority that could lead to future taxpayer bailouts. When billions of dollars are at stake, the American people and Congress are entitled to additional disclosure that creates a clearer picture of the Fed’s policy decisions.
I supported recent House passage of H.R. 3189, the Fed Oversight Reform and Modernization (FORM) Act of 2015 to hold the Fed accountable and increase transparency on behalf of American taxpayers. Among its reforms, the FORM Act will reduce ad hoc decision-making by requiring the Fed to adopt a mathematical rule for setting interest rates. The bill will also require to Fed to develop and explain its monetary policy strategy. Currently, despite its expansive authority, the Fed is not required to conduct cost-benefit analysis for new regulations. The FORM Act would create a new requirement that the Fed conduct cost-benefit analysis when it adopts new rules.
Former U.S. Representative Barney Frank, the author of the Dodd-Frank legislation, even once said that, “No one in a democracy, unelected, should have $800 billion to dispense as he sees fit.” The FORM Act amends the Fed’s emergency lending authority by requiring a stricter standard for true emergencies so that taxpayers are not faced with bailing out firms deemed “too big to fail.” Finally, the FORM Act requires that the Fed be audited, with an audit report to be delivered to Congress within 90 days.
An overwhelming majority—almost three quarters—of Americans favor auditing the Fed and making the results public. While Americans are also wary of political influence on the Fed’s independent decisions, requirements that increase transparency without creating policy mandates will encourage accountability and improve public confidence. Requiring the Fed to communicate the strategy behind its policy will reassure Americans and maintain the bank’s independence. I urge the U.S. Senate to take up this important legislation that will increase certainty for American taxpayers and accountability for the Fed.