House passes Huizenga bill to increase Fed oversight
Washington — The House voted 241-185 Thursday to approve a bill sponsored by Rep. Bill Huizenga of west Michigan aimed at boosting congressional oversight of the Federal Reserve.
The bill would require the central bank to use a mathematical formula, rather than its discretion, to determine interest rates and mandate more transparency about bank stress tests. The formula chosen by the Fed would be reviewed by the Government Accountability Office, the investigative and auditing arm of Congress.
Huizenga, the Zeeland Republican who chairs the House Financial Services Subcommittee on Monetary Policy and Trade, said his legislation would increase openness and accountability by requiring the Fed to communicate its policies to the public. The Federal Reserve’s policy-making, including how it sets its short-term borrowing rate currently at near 0 percent, has traditionally been secretive.
“By requiring the Fed to regularly communicate how its policy choices compare to a benchmark rule instead of continuing the ad-hoc strategy currently being employed, the (Fed Oversight Reform and Modernization) Act will help consumers and investors make better decisions in the present and create more sound expectations about the future,” Huizenga said on the House floor.
The White House this week said it opposes Huizenga’s bill in part because subjecting the central bank to audits “based on the political whims of members of Congress — of either party — threatens one of the pillars of the nation’s financial system and economy.” The administration said it would recommend President Barack Obama veto the bill if the Senate approves it.
Federal Reserve Chairwoman Janet Yellen wrote to House Speaker Paul Ryan, R-Wisconsin, and Minority Leader Nancy Pelosi, D-California, on Tuesday, reiterating her position that the bill’s rules-based approach is unworkable and would “severely damage” the economy were it adopted.
Yellen also expressed concern about the bill curbing the Fed’s emergency lending powers, saying that in a future financial crisis, it’s “essential” that the central bank have the powers necessary to “mitigate harm” to the economy.
Rep. Maxine Waters, D-California, spoke against the bill on the House floor Wednesday, saying it would undermine the independence of the Fed and politicize its decision-making.
“This bill is designed to put monetary policy on auto-pilot under a strict rules-based approach, subject to reviews and audits by the GAO,” said Waters, ranking member of the Financial Services Committee.
Huizenga objected to the characterization of the bill as Congress “setting” monetary policy, noting the measure would allow the Fed to deviate from its selected formula if conditions warranted a change.
“You just need to explain it to us, and if you’re going to deviate from (the benchmark rule) —which you’re allowed to do — you just need to notify us of that,” he said.
“Frankly, I don’t trust Congress to come up with this either. That’s why we don’t do that. We don’t require them to follow what Congress is doing. All we’re saying is, ‘You develop it, Fed. Then share it.’ ”