Guarded Optimism Voiced on Measure in Congress To Narrow Scope of the Federal Reserve
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
NEW YORK — The main sponsor in Congress of legislation to narrow the mandate of the Federal Reserve expressed guarded optimism about the bill’s prospects at a monetary parley here today.
Representative Kevin Brady was speaking of his “Sound Dollar Act,” which would mark a dramatic shift in the nation’s monetary policy by ordering the Federal Reserve to make the long-term stability of the dollar its sole priority.
This would mark a significant break from the Fed’s current Congressional guidance, which provides a “dual mandate” – to maximize both employment and price stability. Because Federal Reserve actions are not an effective way to achieve job growth, Mr. Brady said, that goal should be dropped as a guiding mandate.
His comments were the main feature of the meeting today of a private group of Fed watchers called the Shadow Open Market Committee. If his prognosis is correct the Congress is moving toward ending the era of Humphrey-Hawkins, a law that requires the Federal Reserve not only to maintain stable prices but also to seek to reduce unemployment.
“While the dual mandate may be politically appealing, it makes no sense for Congress to charge the Federal Reserve to control what it cannot,” Mr. Brady said. “Except in the very short term, monetary policy can’t boost real output and job creation.”
Mr. Brady said, the Fed’s use of monetary policy to promote short-term growth “may actually harm the economy in the long run.” He quoted a recent warning from the president of the Federal Reserve Bank of Dallas, Richard Fisher, that such actions by the Fed amounted to “monetary morphine,” which “temporarily eases pain but does nothing to cure the underlying disease.”
Asked by the Sun about the bill’s prospects in Congress, Mr. Brady said he was pleased that the measure had lined up 25 to 30 co-sponsors “in a fairly quick order.” He was also positive about the leadership support for the bill. “We’ve been encouraged,” he said. However, due to the hyper-charged political atmosphere prevailing in this presidential election year, he said that 2012 would largely be spent “laying the groundwork” for later action on the bill.
“It’s a building year” for the legislation, Mr. Brady said, providing time for advocates to build support in Congress and educate the public about the merits of what would be a historic policy shift.
Despite his use in the bill of the phrase “sound dollar,” the congressman does not count himself among advocates for the restoration of a gold or silver standard. “In this global economy,” he said, “I don’t see it as the future going forward.” Nevertheless, the dollar’s current status as a “fiat currency highlights the need for the country to be fiscally sound,” he said, in order to “maintain a strong dollar over time.”
Noting the policy failures of the Obama administration in this respect, he asserted that “the White House has fallen far short of their responsibilities.” This is one reason why the Federal Reserve has been “trying to compensate” with its increasingly complex interventions in the economy in recent years, he said.
Ending the dual mandate should really be seen as a correction of the Fed’s course, Mr. Brady argued. Some have responded to the idea “as if a single mandate is a shocking proposal — an affront to all that is right and good,” he said. “But as we know, the United States won World War II, enjoyed three decades of prosperity, and put a man on the moon without a dual mandate. It’s not a fundamental part of our constitution or carved in granite.”
The dual mandate, Mr. Brady said, is merely “a policy directive that Congress can and should change to ensure the future prosperity of our nation.”
The Sound Dollar Act also calls for a major reform to the Federal Reserve’s operations by granting a permanent vote on the Federal Open Market Committee — a key decision-making body — to the presidents of all 12 of the regional Federal Reserve Banks. Currently, only a few of the governors are given a vote at any given time. This change “broadens input and geographic diversity in FOMC decision-making,” Mr. Brady said.
The legislation also seeks to impose congressional oversight on the Consumer Financial Protection Bureau and to require the Fed to publish its never before announced lender-of-last-resort policy, among other policy proposals.
Mr. Brady, the top Republican and vice chairman of the Congressional Joint Economic Committee, is also Deputy Whip of House Republicans and a senior member of the House Ways & Means Committee.