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CHRG-115Hhrg30775.Pdf EXAMINING FEDERAL RESERVE REFORM PROPOSALS HEARING BEFORE THE SUBCOMMITTEE ON MONETARY POLICY AND TRADE OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTEENTH CONGRESS FIRST SESSION NOVEMBER 7, 2017 Printed for the use of the Committee on Financial Services Serial No. 115–56 ( U.S. GOVERNMENT PUBLISHING OFFICE 30–775 PDF WASHINGTON : 2018 VerDate Sep 11 2014 13:49 Sep 24, 2018 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 G:\GPO PRINTING\DOCS\115TH HEARINGS - 1ST SESSION 2017\2017-11-07 MPT LEG P nshattuck on FSR297 with DISTILLER HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman PATRICK T. MCHENRY, North Carolina, MAXINE WATERS, California, Ranking Vice Chairman Member PETER T. KING, New York CAROLYN B. MALONEY, New York EDWARD R. ROYCE, California NYDIA M. VELA´ ZQUEZ, New York FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia STEVE STIVERS, Ohio AL GREEN, Texas RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota ANN WAGNER, Missouri ED PERLMUTTER, Colorado ANDY BARR, Kentucky JAMES A. HIMES, Connecticut KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio MIA LOVE, Utah DENNY HECK, Washington FRENCH HILL, Arkansas JUAN VARGAS, California TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas DAVID A. TROTT, Michigan CHARLIE CRIST, Florida BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada ALEXANDER X. MOONEY, West Virginia THOMAS MacARTHUR, New Jersey WARREN DAVIDSON, Ohio TED BUDD, North Carolina DAVID KUSTOFF, Tennessee CLAUDIA TENNEY, New York TREY HOLLINGSWORTH, Indiana KIRSTEN SUTTON MORK, Staff Director (II) VerDate Sep 11 2014 13:49 Sep 24, 2018 Jkt 000000 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 G:\GPO PRINTING\DOCS\115TH HEARINGS - 1ST SESSION 2017\2017-11-07 MPT LEG P nshattuck on FSR297 with DISTILLER SUBCOMMITTEE ON MONETARY POLICY AND TRADE ANDY BARR, Kentucky, Chairman ROGER WILLIAMS, Texas, Vice Chairman GWEN MOORE, Wisconsin, Ranking Member FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York BILL HUIZENGA, Michigan BILL FOSTER, Illinois ROBERT PITTENGER, North Carolina BRAD SHERMAN, California MIA LOVE, Utah AL GREEN, Texas FRENCH HILL, Arkansas DENNY HECK, Washington TOM EMMER, Minnesota DANIEL T. KILDEE, Michigan ALEXANDER X. MOONEY, West Virginia JUAN VARGAS, California WARREN DAVIDSON, Ohio CHARLIE CRIST, Florida CLAUDIA TENNEY, New York TREY HOLLINGSWORTH, Indiana (III) VerDate Sep 11 2014 13:49 Sep 24, 2018 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 G:\GPO PRINTING\DOCS\115TH HEARINGS - 1ST SESSION 2017\2017-11-07 MPT LEG P nshattuck on FSR297 with DISTILLER VerDate Sep 11 2014 13:49 Sep 24, 2018 Jkt 000000 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 G:\GPO PRINTING\DOCS\115TH HEARINGS - 1ST SESSION 2017\2017-11-07 MPT LEG P nshattuck on FSR297 with DISTILLER C O N T E N T S Page Hearing held on: November 7, 2017 ............................................................................................. 1 Appendix: November 7, 2017 ............................................................................................. 41 WITNESSES TUESDAY, NOVEMBER 7, 2017 Bernstein, Jared, Senior Fellow, Center on Budget and Policy Priorities .......... 8 Levin, Andrew T., Professor of Economics, Dartmouth College .......................... 7 Levy, Mickey, Managing Director and Chief Economist, Berenberg Capital Markets ................................................................................................................. 10 Plosser, Charles I., Visiting Fellow, Hoover Institution ....................................... 5 APPENDIX Prepared statements: Bernstein, Jared ............................................................................................... 42 Levin, Andrew T. .............................................................................................. 53 Levy, Mickey ..................................................................................................... 112 Plosser, Charles I. ............................................................................................ 120 (V) VerDate Sep 11 2014 13:49 Sep 24, 2018 Jkt 000000 PO 00000 Frm 00005 Fmt 5904 Sfmt 5904 G:\GPO PRINTING\DOCS\115TH HEARINGS - 1ST SESSION 2017\2017-11-07 MPT LEG P nshattuck on FSR297 with DISTILLER VerDate Sep 11 2014 13:49 Sep 24, 2018 Jkt 000000 PO 00000 Frm 00006 Fmt 5904 Sfmt 5904 G:\GPO PRINTING\DOCS\115TH HEARINGS - 1ST SESSION 2017\2017-11-07 MPT LEG P nshattuck on FSR297 with DISTILLER EXAMINING FEDERAL RESERVE REFORM PROPOSALS Tuesday, November 7, 2017 U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MONETARY POLICY AND TRADE, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The subcommittee met, pursuant to notice, at 2:19 p.m., in room 2128, Rayburn House Office Building, Hon. Andy Barr [chairman of the subcommittee] presiding. Present: Representatives Barr, Williams, Huizenga, Pittenger, Love, Hill, Emmer, Mooney, Davidson, Tenney, Hollingsworth, Moore, Foster, Sherman, Green, Kildee, Vargas, and Crist. Chairman BARR. The chair is authorized to declare a recess of the committee at any time, and all members will have 5 legislative days within which to submit extraneous materials to the Chair for inclusion in the record. This hearing is entitled ‘‘Examining Federal Reserve Reform Pro- posals.’’ I now recognize myself for 5 minutes to give an opening statement. Some see the last decade of monetary policy as a failure, while others see it as a success. Wherever we stand on this debate, I hope we can all agree that stronger economic growth over recent quarters is promising and American economic opportunities can ex- pand even faster with reforms that build on the best ideas from both sides of our aisle. The legislation we will consider today does just that. Monetary policy can appear complicated, but whether you work in the Fed’s Eccles Building or in any of our districts, monetary policy supports a stronger economy when it is communicated simply and clearly. Recent Fed research finds that uncertainty about monetary policy slows our economy and reduces credit availability. In other words, simple and clear policy communications improve American eco- nomic opportunities. Both Democratic and Republican witnesses have testified before us on the importance of a simple and clear communication of mone- tary policy. For example, during our last Humphrey-Hawkins hear- ing, Federal Reserve Board Chair Yellen expressed interest in working with our committee to codify a simple and effective strat- egy for a more transparent monetary policy. In addition, former Vice Chair of the Federal Reserve Board Dr. Donald Kohn offered the following advice in a recent Brookings In- stitution report. The Federal Reserve should use the semi-annual monetary policy report to better explain and focus on its broad (1) VerDate Sep 11 2014 13:49 Sep 24, 2018 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\GPO PRINTING\DOCS\115TH HEARINGS - 1ST SESSION 2017\2017-11-07 MPT LEG P nshattuck on FSR297 with DISTILLER 2 strategy. For some time, the Fed’s Open Market Committee has been shown the results of a number of policy rules, and this mate- rial has been accompanied by explanations of why the current and expected settings of monetary policy might deviate from the rules. The Monetary Policy Transparency and Accountability Act that we will consider today provides for exactly this type of framework. Indeed, this bill reflects the very generous advice of both Chair Yellen and Dr. Kohn. Our draft legislation also addresses what Members of Congress and experts from both sides of the aisle see as an opportunity to better manage our fiscal house and increase our financial resiliency by protecting households from bailouts and holding Congress to account for tough decisions that can easily be punted to the Fed. Our congressional Accountability for Emergency Lending Act takes an important step in this direction by embracing this bipartisan Warren-Vitter framework for congressional approval of emergency lending. At the same time, our Independence from Credit Policy Act main- tains the Fed’s role as an originator of emergency loans while in- sulting our monetary authority from compromising political pres- sures to overreach into credit policy. Authoritative economists of different stripes share a common concern about these pressures. Testifying as a witness for my Democratic friends, MIT Professor Simon Johnson emphasized this bipartisan agreement. I think we are all agreeing that this fiscal policy infrastructure is the responsibility of the fiscal authority, which is that of the Congress and the United States acting through the Executive Branch. It is not the responsibility and should not become the re- sponsibility of the Federal Reserve. Recently, Brandeis Professor Stephen Cecchetti shared the same concern as a minority witness for our Joint FI-MPT Subcommittee hearing. And even the New York Times’ Paul Krugman joined this chorus, highlighting how the Fed’s unconventional balance sheet
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