Federal Reserve Transparency Billby Senator Sherrod Brown
Posted on 2016-01-12
BROWN. Mr. President, I rise today to speak in opposition to S.
2232, the Federal Reserve Transparency Act. I am concerned that, out of
all the issues before the Senate and out of all the issues we need to
work on--in terms of growth, in terms of ISIS, in terms of wage
inequality, in terms of transportation, and so many other issues--this
is the first bill the Senate considers at the beginning of the year.
I will talk for a moment about the direction in which we should go, but I want to talk about this issue. There are so many issues we are not talking about--national security, job creation, college affordability, student debt, and immigration.
In my time in Ohio over the past several weeks, people talked to me about all kinds of different issues that Congress should be addressing. But it, frankly, comes as no surprise to anybody watching or any of my colleagues that not one person came up to me and said: ``Congress needs a greater say in monetary policy.'' There is no demand for that, except from those who want to score political points. There is no reason for this. There is no legitimate public function that we should even do this legislation, the Federal Reserve Transparency Act. And don't be fooled by the name of the bill because it really isn't about transparency. It is about the Federal Reserve but not about transparency. But let me move on.
Federal Reserve Chair Janet Yellen recently wrote to Senate leaders, copying all of us in the Senate, and spoke to the central problem with this legislation: This bill risks undoing the steady progress that has been made on the economic recovery over recent years in an environment with low and stable inflation expectations; progress that was made in part because the Federal Reserve is able to make independent decisions in the longer-term economic interest of the American people.
``Audit the Fed'' legislation, if enacted, would undermine the independence of the Federal Reserve and likely lead to an increase in inflation fears and market interest rates, a diminished status of the dollar in global financial markets, increased debt service costs for the federal government, and reduced economic and financial stability.
Janet Yellen is exactly right. This legislation is about 535 Members of Congress getting involved in Federal monetary policy. I can't imagine that the American people want a Federal Reserve where Congress is so involved that it is disruptive and where it becomes so political. That is really what this is all about. It is about a handful of Members of the House and Senate who want to govern monetary policy in a way so that it ultimately won't work in the public interest. It is about their political talking points. It is about all of that.
Let's go back. When President Obama took office--you will hear about this in tonight's speech, I assume, down the hall in the House of Representatives--our country was losing about 800,000 jobs a month when he took office. In February 2010, we did the Recovery Act and the auto rescue. Since February 2010, we have seen job growth for about 69, 70, 71 straight months since the auto rescue. I know what the auto rescue meant in my State. I know we see an auto industry that is doing very well and we see a lot more people back to work.
Supporters of auditing the Fed claim they want to make the Fed's operations and activities more transparent. We know that is not what this is about. In a statement in July, the Senate banking committee chairman--the Republican chair of the committee, Richard Shelby, hit the nail on the head. Here is what he said: A lot of people called for an audit of the Fed for years, but they already audit the Fed for years . . . I don't believe they're just talking about an audit, like you'd audit the books of somebody--they're talking about monetary policy. They're talking about . . . 435 members of the House and 100 Senators getting into the day-to-day business of the monetary policy of the Fed. We created the Fed, Congress did, to get politics as far as we could out of it. I don't believe we need politics back in it.
Chairman Shelby is right. We don't need 535 Members of Congress on the Federal Open Market Committee. One of the most important components we need for sound monetary decisionmaking policy is political independence.
Senator Paul--the sponsor of this--argues that we need to understand the ``extent of the Fed's balance sheet.'' Congress already requires the Federal Reserve to have its financial statements audited every year by an external auditor, someone who is outside, independent of all matters relating to the Fed. The Fed releases a quarterly report presenting detailed information on the Fed's balance sheet and information on the combined financial position and results of operations of the Federal Reserve Banks. That report is released to Congress. The report is available to the public on the Fed's Web site. Anyone can go to federalreserve.gov right now and read it.
Each week the Fed publishes its balance sheet and charts of recent balance sheet trends. There are legitimate criticisms of the Federal Reserve. There always have been. There probably always will be because of its reach and complexity, but since the crisis the Fed has gotten better. It has gotten better in part because of the last two Chairs of the Federal Reserve--Ben Bernanke, a Bush appointee and then an Obama nominee the second time, and with Janet Yellen, an Obama [[Page S49]] nominee. Since the crisis, the Government Accountability Office has conducted over 100 audits of the Federal Reserve's activities. Many of these audits relate to the financial crisis, including the Fed's emergency lending activities. There is more and there should be more.
The Fed is transparent and accountable in the following ways. Let me list them again. This is not an out-and-out defense of the Fed. They should be open to criticism. There is still much to criticize about them, but this legislation solves nothing, except to politicize the Fed. These are the ways the Fed is transparent and accountable: The Chair of the Federal Reserve is required to testify before the Senate Banking Committee and the House Financial Services Committee twice a year on monetary policy. In practice, she will testify at additional hearings and other topics. The Governors of the Federal Reserve and senior staff--that is, others of the nine members of the Federal Reserve--testify dozens more times every year.
The Fed releases a statement after each Federal Open Market Committee meeting to describe the FOMC's decisions and the reasoning behind those decisions. The Chair holds press conferences four times a year after FOMC meetings. Minutes of FOMC meetings are released 3 weeks after each meeting and are available on the Federal Reserve's Web site. Transcripts of FOMC meetings are released earlier than before--5 years after each meeting and are available on the Fed's Web site. That is much earlier than most other central banks release transcripts, for obvious reasons.
Summaries of the economic forecasts of FOMC participants, including their projections for the most likely path of the Federal funds rate, are released quarterly. The Board's Office of the Inspector General audits and investigates all of the Fed's Board and Reserve bank programs, operations, and functions. These completed audits, assessments, and reviews are listed in the Federal Reserve Board's annual report.
The Fed releases detailed transaction-level data on the discount window lending and open market operations. This is relatively new. This was required by the Dodd-Frank Wall Street reform law. Clearly, Congress knew the Fed was not as responsible and open as it should be. One of the things we did in Dodd-Frank was this reform. All securities that the Fed holds are published on the Federal Reserve Bank of New York's Web site.
The New York Fed, the most important district regional Federal Reserve--there are 12 of them, including one in the city I live in, Cleveland. The New York Fed is the most important for a number of reasons. It publishes an annual report of the system open market account that includes a detailed summary of open market operations over the year, and it includes balance sheet and income projections. I would add, this Chair of the Federal Reserve is more open to the public. This Chair of the Federal Reserve is out and about the country, as was her predecessor, Chairman Bernanke, and Chair Yellen even more so. She was in Cleveland not too long ago last summer making a speech to the City Club of Cleveland. Afterward she and I went to visit a large Cleveland national manufacturer with a large site in Cleveland so she could see the real economy, talk to workers, and see how important manufacturing is, especially in the middle of the country, to all things Federal Reserve.
I wonder how many of those claiming the Fed is not transparent have actually taken the time to read some of these reports I mentioned-- whether it is the annual report, whether it is some of the audits, whether it is some of the transcripts of FOMC, and I wonder if they have listened to very many of these hours of testimony from Chair Yellen or from Governor Tarullo, Governor Powell or others on the Federal Reserve. The Fed is far from perfect. I have been one of its major critics in this body, as the ranking Democrat on banking, but I argued, for instance, that it should be a stronger regulator of the Nation's large bank holding companies. I appreciate what it is doing with living wills. I think that is very important. I especially appreciate what the Fed has done for stronger capital standards. To me, that is the most important thing we can do. It is more important than reinstatement of Glass-Steagall, more important than my amendment of 5 years ago to break up the largest banks, making sure banks have significant enough capital to make the system safer and sounder, but it is hard to dispute that this Fed is one of the most transparent central banks in the world.
What is this truly all about? I know some of people are unhappy about decisions the Federal Reserve made during the financial crisis, including holding interest rates near zero for 7 years. They want to show their anger at the Fed by taking away independence, but without the Fed's extraordinary monetary policy actions, which might not have been possible if its actions were micromanaged by Congress, our economy would likely be in a far worse situation today.
Several months ago I was asked by C-SPAN to interview Chairman Bernanke on one of its shows called ``After Words.'' We sat for an hour at a studio in Washington and discussed the memoir that Chairman Bernanke began to write on the day he left the Federal Reserve a couple of years ago. It was clear then that because Congress had pursued, in terms of fiscal policy, such austerity, he saw the economic growth that had started with the auto rescue and the Recovery Act, he saw that economic growth--immobilized is perhaps not the right word, but he saw that economic growth stall. He knew, because Congress was starting to squeeze the economy at that point with the wrong kind of fiscal policy, that he had to make up for it by low interest rates and ultimately by quantitative easing, which is what he did. So understanding that he knew he would offend some Members of Congress with that action, he also understood that because he was independent, he could do the kinds of things, as Chair Yellen has been able to do, to get this economy growing. Hence, in large part because of the auto rescue but in large part because of QE that the Federal Reserve has done through the last two Chairs of the Federal Reserve--one a Republican appointee and one a Democratic appointee--the Fed has been independent enough to do the right thing.
Inflation remains low. We have something called a dual mandate, where the Federal Reserve is responsible for working to keep inflation at no more than 2 percent and unemployment at no more than 5 percent. The Fed has balanced that well. Inflation remains low, despite the doomsday prediction by many of this bill's proponents. We know our economy still has a way to go and that too many Americans are struggling, but it is clear that an increase in interest rates before last month would have been premature and would have been harmful to working Americans. If Congress were involved in that, in the way that the sponsor of this bill seems to want, our economy would be in much worse shape. I don't think there is much question about that.
Audit the Fed legislation, there is also a backdoor, piecemeal way of instituting something called the Taylor rule, which is an attempt to impose a monetary policy role on the Fed. To me, this is the heart of this legislation that when they look at the dual mandate, they think way more about inflation, which is what the bondholders of Wall Street want them to do, and way less about fiscal policy and way less about low interest rates and way less about employment. The dual mandate is inflation and employment.
If you lean far too much toward inflation, which is what Wall Street wants, then people on Main Street are left out. Frankly, that has been the story of the Fed for far too many years. That is why what Chairman Bernanke did and what Chairwoman Yellen have done is so important, but if the audit the Fed sponsors have their way, we will see some kind of Taylor rule.
In November, House Republicans passed a Federal Reserve reform bill that imposes the Taylor rule. The enforcement mechanism? GAO reviews, audits, and reports. Is there any doubt that this is where the audit the Fed effort is headed next? I urge my colleagues to vote no this afternoon. This vote will take place in a couple of hours. It is in the interests of all of us to understand the role, the operations, and the activities of the Federal Reserve. We can do that better [[Page S50]] in this body. This is not the way to do it. We can do it better. It is also in the interest of the American economy for Congress to keep its political hands, if you will, out of monetary policy decisionmaking.
If Republicans were serious about making the Fed work better, they would confirm the two pending nominees to the Board of Governors--a Republican community banker named Al Landon, who has been waiting for a nomination hearing for a year, and Kathryn Dominquez, a Democratic nominee, who has been waiting for nearly 6 months. Yet, instead of working to improve the Fed's operations, we are considering this bill to undermine it. It is a big mistake that most people I know who have any expertise in the Federal Reserve reject. I ask my colleagues to vote no.
The PRESIDING OFFICER. The Republican whip.