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.