The Case Against Fed Reform
By Tyler Durden
Submitted by Tho Bishop via The Mises Institute,
This week the 115th Congress was sworn in, and there are some indications that Fed reform may be on the agenda. The combination of populist anger fueled by Ron Paul’s Presidential campaigns and the 2008 financial crisis coupled with the repeated failings of the Federal Reserve to meet their projections has created a rare window for monetary policy to be both politically advantageous, as well as so obviously needed that even politicians can see it.
The question now is what sort of reform is on the table.
Congressional Reforms
Last Congressional session saw proposals from both the House and the Senate.
From the House we have the FORM Act, which would require the Fed to adopt a monetary policy rule and explain to Congress whenever they deviate from that rule. The FORM Act also calls for an annual GAO audit of the Federal Reserve, doubles the number of times the Fed Chairman testifies before Congress, and makes some other tweaks to the makeup and protocol of the Federal Reserve Board. Since the FORM Act passed the House in 2015, there is a good chance we will see it resurrected in 2017.
On the Senate side, Banking Committee Chairman Richard Shelby has pushed for the Financial Regulatory Improvement Act. Not only does it lack a catchy acronym, but its reforms to the Fed are far more modest than the FORM Act. The meat of the bill focuses on changes to the Fed board. The head of the New York Fed would no longer be appointed the banks board of the directors, but would instead be nominated by the President and confirmed by the Senate – just like the Federal Reserve Chairman. It would also grant powers to the Fed’s regional presidents that currently only reside with the board of directors.
Though early drafts of the Senate bill called for the Fed to adopt rules-based monetary policy, this ended up being stripped from the final proposal due to Democratic opposition – largely because much of the Hill focus has been on the Taylor rule, which many Fed advocates fear is too restricting.
The Battle Over the Taylor Rule
Recently this debate has played out in the pages of the Wall Street Journal with Neel Kashkari and John Taylor exchanging op-eds on the virtues of rules-based policy.
Though Kashkari begins with a broad attack on monetary rules, it quickly devolves into a focused attack on the Taylor Rule which he argues “effectively turn[s] monetary policy over to a computer, rather than continue to let Fed policy makers use their best judgment to consider a wide range of data and economic trends.” Of course Kashkari ignores that the “best judgement” of Fed policy makers has been widely criticized – and not just by Austrians who oppose any sort of Fed policy at all.
Kashkari’s allusion to a computer-guided monetary policy is may be an attempt to get readers to conflate recent monetary …read more
Source: The Case Against Fed Reform
