Despite the lowest unemployment rate in five years, and year-over-year inflation nearly stagnant according the latest Consumer Price Index (CPI) numbers, the Federal Reserve has come under pressure lately both from Congress and the American general public.
Most recently at a House Financial Services Committee hearing on July 15, Chairman Jeb Hensarling (R-TX), accused Reserve Chair Janet Yellen of “willfully ignoring” the Committee’s request for Federal Open Market Committee (FOMC) meeting documents leaked by the Fed to a macro-economic policy consulting firm in New York.
FOMC, a subdivision of the Federal Reserve, meets quarterly to discuss the buying and selling of U.S. Treasury securities which directly affect interest rates (the cost of borrowing). Notes from the meetings are required to be disclosed publicly.
Yellen explained that an open investigation into the leak by the Fed’s inspector general (I.G.) and the Justice Department (DoJ) precludes the central bank from complying with Congressional requests because, “they have indicated to us that it will . . . likely compromise their investigation.”
“Madam Chair, it appears that you are the one who is jeopardizing – or the Fed is the one that is jeopardizing this investigation,” said Financial Services Committee member Sean Duffy (R-WI). “You’re not bound by the I.G.; you’re not bound by the DoJ . . . If anyone is trying to sweep this under the rug, it’s the Fed.”
The Federal Reserve was enacted in 1913 as an independent central bank and charged with establishing monetary policy which maximizes employment and stabilizes consumer prices, subject to Congressional oversight.
At the same meeting earlier in July, Rep. Hensarling also criticized the Fed by describing its guidance on monetary policy as being “somewhat amorphous, opaque, and improvisational.”
To that end, a Gallup poll of U.S. citizens released in November of 2014 showed that respondents rated the Fed 12th out of 13 federal agencies for overall performance. Only the Department of Veteran Affairs, which oversees the Veterans Health Administration, ranked lower.
J.W. Verret, a George Mason University School of Law Professor who helped write the latest Fed reform legislation (Federal Reserve Accountability and Transparency Act), has been critical of the central bank’s inconsistent policies and lack of communication. He chided the Fed for continuing to “communicate monetary policy by picking words out of a thesaurus.”
New York University economist Mark Gertler is skeptical, however, of greater Congressional influence in Fed policy and the Accountability and Transparency Act’s Directive Policy Rule, which would tie borrowing rates to fluctuations in the CPI (known as the Taylor rule).
“(The Taylor rule) would be insane” even with Congressional approval for exemptions, Gerter said. “Congress is a thoroughly political institution, and you want to keep monetary policy as far away (from Congress) as possible.”
An institution charged with a task as large as directing the monetary policy of the biggest economy on earth, with the world’s largest reserve currency, is certainly bound to take a proportional share of the criticism. Only now, when its two main objectives are being fulfilled, one would assume the criticism would start to taper off. Instead, it’s only growing.
Next up for the Fed is an almost certain announcement of interest rate hikes, due in September or December. Either way, they’ll endure much verbal abuse – which is just how should be. If it wasn’t, America would no longer be the world’s biggest economic super-power.[Bloomberg] [The Washington Free Beacon]