GOP Likely To Push Monetary Reforms in Divided Congress

Republican lawmakers are looking to build a coalition of the willing to move toward an honest dollar. They face an uphill climb.

AP/Pablo Martinez Monsivais
The U.S. Federal Reserve. AP/Pablo Martinez Monsivais

Ensuring price stability and building transparency at the Federal Reserve are expected to be key planks in the Republican-led House Financial Services Committee’s agenda next year, but reducing the anguish of the central bank could prove problematic in a divided Congress. 

Republicans could pick up a few Democratic votes for monetary reform among a coalition of the willing in the House. Majority Democrats in the Senate, on the other hand, are unlikely to be ready partners for measures to roll back the Fed’s mission creep.

In recent years, the penchant for Democrats has been to add more directives to the Fed’s mandate, not fewer. Democrats in both chambers have placed a premium on using regulatory agencies to build racial and social equity. 

House Financial Services Committee Democrats last week tweeted their priorities for regulatory accountability. They include promoting diversity and inclusion, monitoring and managing climate risks, and protecting environmental and human rights interests. 

As inflation dominates dinner conversation across America, it wasn’t until a hearing on fair and affordable housing last week that Democrats readily addressed the topic, and the Fed’s responsibilities.

“Instead of promoting price stability, experts are increasingly alarmed that the Fed may be over-correcting for inflation without properly considering the limits of its tools or the impacts of its decisions,” the committee chairwoman, Representative Maxine Waters of California, said during the hearing, one of 55 hearings on housing since Democrats took the majority in 2019.

“Economists are rightfully concerned about the effects of quantitative tightening on the housing market. The $35 billion per month in agency mortgage-backed securities that are rolling off the Fed’s balance sheet takes money out of the housing market, limiting the availability of credit,” the Financial Services ranking member, Representative Patrick McHenry, who appears poised to become committee chairman next session, said in agreement.

Added the Republican of North Carolina: “We know the Fed’s tools to address runaway inflation are blunt, but they are necessary to stabilize the economy and return to normal credit environments.”

The Fed now holds $2.7 trillion in mortgage securities. The shock therapy of its consecutive rate hikes resulted in the Fed recording in September its first operating loss. The loss tees up the question: What tools should be removed from the Fed’s toolbox?

“By my count the Fed has six mandates,” a senior fellow at the Mises Institute, Alex J. Pollock, told the Sun. “How many mandates can you do?” 

“They should let the mortgages run off and not be in the business of trying to manipulate the mortgage market,” Mr. Pollock added.

Republican efforts to rein in the Fed are not new. During the GOP-led Congress of 2017, Congressman Jeb Hensarling of Texas ushered through the Financial Choice Act, which would have imposed new rules on Federal Reserve decision-making and removed limitations on GAO audits of the Federal Reserve Board and Federal Reserve banks.

The measure passed the House on a divided 233-185 vote. The Senate did not pick it up. In 2012, Representative Kevin Brady, also of Texas, introduced the Sound Dollar Act, which would have ordered the Federal Reserve to make the long-term stability of the dollar its sole priority.

One potential area of cooperation could come from lawmakers removing the Fed’s role in funding the Consumer Financial Protection Bureau, President Obama’s signature response to the 2008 housing crisis. Bringing the CFPB back into traditional congressional appropriations would align it with other bureaucratic agencies. 

Representative French Hill of Arkansas and Senator Hagerty of Tennessee introduced legislation in September that would prevent the Fed from funding the CFPB when it records a loss on its books in the prior quarter.

The Federal Reserve Loss Transparency Act also calls on the Fed to calculate its earnings based on Generally Accepted Accounting Principles. Unlike most industries, when the Fed takes a loss it can paper it away by holding onto the asset and declaring it an unrealized gain. 

“The central bank is carrying hundreds of billions of unrealized losses on its assets. it is grossly irresponsible for the Federal Reserve to be funding the bureau’s radical and highly politicized agenda,” Mr. Hill said. “Additionally, our central bank should not be able to use accounting gimmicks to hide these losses.”

“I’m a big supporter of both sides of Congressman Hill’s (legislation),” Mr. Pollock said. “It would require the Fed to operate like everyone else in the world.”

The bill was a late piece of legislation, introduced after the Fed announced its operating loss. Mr. Hill told the Sun he plans to reintroduce the bill and “other commonsense reforms to the Federal Reserve” next session. 

“It’s time for Congress to reassess our monetary policy framework,” he said.

Getting any Republican legislation across the Senate’s 60-vote threshold will be an uphill battle. While monetary policy legislation could potentially qualify as a budget matter and be slipped into a reconciliation bill. Such measures, which need a much slimmer 50-vote majority in the Senate, are rare and fraught with competition. A package of financial legislation that includes a variety of legislation could be a realistic vehicle.

Regardless of the vehicle, at 2 percent inflation returning the Federal Reserve to the gold standard would save the dollar from losing half of its purchasing power every 35 years. “The proposal I back is one where the Fed has to explain … how their purchasing power is being eroded by the Fed’s monetary policy,” Mr. Pollock said.


The New York Sun

© 2025 The New York Sun Company, LLC. All rights reserved.

Use of this site constitutes acceptance of our Terms of Use and Privacy Policy. The material on this site is protected by copyright law and may not be reproduced, distributed, transmitted, cached or otherwise used.

The New York Sun

Sign in or  Create a free account

or
By continuing you agree to our Privacy Policy and Terms of Use