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Federal Reserve: Legislation in the 115th Congress (CRS Report for Congress)

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Release Date Revised Sept. 25, 2018
Report Number R44848
Report Type Report
Authors Labonte, Marc
Source Agency Congressional Research Service
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Summary:

The Federal Reserve (Fed) is the subject of legislation being considered in the 115th Congress. This report analyzes Fed bills that have seen committee or floor action and the policy debate surrounding them. The bills contain wide-ranging changes that can be grouped into five broad categories Fed governance. Some proposals would change the Fed’s institutional structure. H.R. 10 as passed and H.R. 4757 would increase the voting weight of regional Fed presidents on the Federal Open Market Committee (FOMC) at the expense of the Fed’s Board of Governors and the New York Fed. H.R. 10 would also create a congressional commission to recommend reforms to the Fed. P.L. 115-123 reduced the Fed’s surplus account from $10 billion to $7.5 billion. H.R. 1116, H.R. 4296, H.R. 4607, S. 2155, and H.R. 4545 would further reduce the surplus. Oversight and disclosure. Some proposals aim to make the Fed more accountable to Congress by increasing congressional oversight or requiring the Fed to disclose more information to Congress or the public. H.R. 24 as reported and H.R. 10 would require Government Accountability Office (GAO) audits of the Fed that are not subject to current statutory restrictions that prevent GAO from performing policy evaluations of the Fed’s monetary policy. H.R. 10 would subject the Fed’s rulemakings to cost-benefit analysis requirements, require the FOMC to publicly release meeting transcripts, and increase requirements to periodically report to and testify before Congress. H.R. 10 and H.R. 4791 would require the Fed to publicly disclose information on international negotiations and the salaries and personal finances of certain officials and employees. H.R. 10, H.R. 4755, H.R. 3280 as reported, and H.R. 3354 as passed by the House would subject the Fed’s nonmonetary policy functions to the congressional appropriations process and require the Fed to levy assessments to offset them. Monetary policy rules (the Taylor Rule). H.R. 10 and H.R. 4270 as reported would require the Fed to compare its monetary policy decisions to those prescribed by a policy rule (e.g., the Taylor Rule) and report those findings to Congress. Under H.R. 10, policy deviations from the rule would trigger GAO audits and congressional testimony. The Fed’s emergency lending powers. H.R. 10 and H.R. 4302 as reported would reduce the Fed’s discretion to make emergency loans under Section 13(3) of the Federal Reserve Act. The Fed used this authority to extend credit to nonbank financial firms during the financial crisis. The Fed’s balance sheet. H.R. 4278 as reported would limit the types of securities that the Fed may acquire through open market operations to gold, coins, or the direct obligations of the federal government, foreign central banks, or the International Monetary Fund. It would require the Fed to swap any other assets (currently, including its large holdings of mortgage-backed securities) for federal debt with the Department of the Treasury. The proposals reviewed in this report are wide ranging and diverse; many are united by the goals of increasing the Fed’s accountability to Congress and decreasing Fed discretion. Although some provisions make minor changes, taken together the proposals would arguably somewhat reduce the Fed’s independence from Congress. The Fed is more independent than most other agencies, which has traditionally been justified by its monetary policy responsibilities. Most research has found a positive relationship between monetary policy independence and economic outcomes. (Research is more divided on whether there is a positive relationship between Fed discretion and economic outcomes.) To some extent, a tradeoff between independence and accountability is unavoidable. For example, Congress can require the Fed to follow a policy rule to reduce discretion, but Congress can ensure compliance with the rule only if there are negative consequences for noncompliance that would reduce independence.