Statements on Introduced Bills and Joint Resolutionsby Senator Bob Corker
Posted on 2013-02-04
CORKER (for himself and Mr. Vitter):
S. 215. A bill to ensure that the Federal Reserve conducts its
policies to ensure long-term price stability and a low rate of
inflation; to the Committee on Banking, Housing, and Urban Affairs.
Mr. CORKER. Mr. President, I am here today to introduce the Federal Reserve Mandate Act of 2013 in an effort to begin returning our country to the right place in monetary policy. Senator Vitter is joining me in this effort.
[[Page S472]] The objective of our bill is simple. Our Central Bank, like other Central Banks around the world, should be focused on creating an environment of price stability. This should be the guiding principle of monetary policy decisions.
This is neither a radical nor a new idea. Most economists argue that the proper role of the Central Bank is to serve as a lender of last resort in a time of crisis, to supply payment distribution and clearing mechanisms, and to manage the money supply so that inflation stays in check. Managing unemployment is a completely separate task and not appropriate for the blunt tools of monetary policy. That is why almost every developed country's Central Bank has as its mandate the maintenance of price stability. In other words, we are an outlier.
This is not to say that a focus on price stability means the Fed is abandoning unemployment. In fact, just the opposite is true. Monetary policy can and should create an environment where jobs can grow and thrive by giving the economy certainty that prices will remain stable over the long term.
We have strayed a long way from traditional Central Bank actions. We have lost sight of the proper role of monetary policy in our economy. With roughly $3 trillion in assets--and I think the Presiding Officer knows that by the end of this year it is projected we will have $4 trillion in assets--sitting on the Fed's balance sheet, there is no question that the Fed is distorting financial markets with multiple rounds of quantitative easing. At a minimum, we have completely lost price signals from instruments such as treasuries and mortgage-backed securities. It is likely, however, we are doing more damage than just that. We may be creating asset bubbles elsewhere as money moves into investments that are risky.
We are also punishing savers. Purchasing assets to drive down rates forces pension funds and retirees to shift money into asset classes that may not be best for them. We are creating ``Fed addicts'' in our markets. Equity markets go through cycles where they become almost Fed obsessed. In these environments, good news is bad for equity markets because it means less QE buying. Meanwhile, bad economic news is good for markets because it means more easy money is on the way. Now we risk the perils of unwinding this policy.
Economists are beginning to discuss the likelihood that the Fed will take significant losses on assets it has purchased. We just had one of the Fed Governors in our office last week sharing with us that as we begin unwinding these balance sheets, it is very likely, as the Presiding Officer can imagine, as interest rates go up and the Fed begins to buy these securities, we are going to lose money on those assets. So it is likely the Fed is going to take significant losses on the assets it purchased. Since the Fed is buying these bonds at record low yields, they will likely sell them down the road at higher yields. I don't think there is anybody right now who disagrees with that probability.
The effect of this is a permanent increase in monetary supplies. This is an incredibly perverse situation we have now locked ourselves into.
The employment mandate at the Fed has not always existed. A lot of people believe it has. It was added with the passage of the Humphrey- Hawkins Act in 1978. Humphrey-Hawkins was passed in a moment of self- congratulations, like a lot of things around here are passed. Congress patted itself on the back for ``ending unemployment.'' Obviously, nothing could be further from the truth. The Fed cannot end unemployment by printing money.
The Central Bank should be tasked with maintaining price stability. We must return to this core principle. This is the reason we are offering this piece of legislation today.
______ By Mrs. FEINSTEIN (for herself and Mrs. Boxer): S. 224. A bill to amend the Federal Water Pollution Control Act to establish a grant program to support the restoration of San Francisco Bay; to the Committee on Environment and Public Works.