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This bill could change the Fed forever
// Personal Liberty Digest™
Federal Reserve Chairwoman Janet Yellen isn't very happy about a bill that gained approval in the House Thursday. That's mainly because the legislation would force the central bank to open its books to the Government Accountability Office for a one-time audit.
The bill, authored by Rep. Bill Huizenga (R-Mich.), is aimed at changing the way the Fed operates and making U.S. monetary policy more predictable via transparency. It passed on a 241-185 vote that fell largely along party lines.
Huizenga and supporters of his legislation argue that the bill "will help consumers and investors make better decisions in the present and create more sound expectations about the future" by creating a set of clear rules for Fed officials.
If it became law, the legislation would limit Fed power by requiring the central bank to adopt a clear mathematical rule to determine its benchmark for interest rates. That would eliminate the kind of market uncertainty that Americans are currently dealing with because investors have no idea when the central bank plans to hike rates after years of quantitative easing.
The bill also includes a plan to curb the Fed's emergency lending powers. That would make it much harder for central bankers to engage in corporate cronyism such as when they propped up struggling financial institutions during the last economic crisis.
Lastly, Huizenga's bill would hold Fed officials to account for their past and future financial decisions. Within a year of the bill's enactment, the Fed would be required to allow the Government Accountability Office to conduct a full audit of its monetary policy. And going forward, Fed officials would be required to conduct a cost-benefit analysis before creating new financial rules.
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said the bill is long past due.
"The Fed is not using a transparent monetary policy. And so because of this, greater transparency, greater accountability is necessary. Otherwise, we may soon awake to discover that our central bankers have morphed into our central planners," he said.
Meanwhile, the usual suspects are claiming Fed accountability would hurt the economy.
"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," Federal Reserve Chairwoman Janet Yellen wrote in a letter to lawmakers.
President Barack Obama has threatened to veto any legislation that would make the central bank more transparent.
"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," his administration said.
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