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Williams Introduces Bill to Improve Federal Reserve Monetary Policy Decisions

Jan 12, 2018

WASHINGTON, DC – U.S. Congressman Roger Williams (R – Austin), who serves as the vice chair on the House Committee on Financial Service’ Subcommittee on Monetary Policy and Trade, introduced H.R. 4759, the FOMC Representation Improvement Act. On Wednesday, the Subcommittee received testimonies from Dr. Norbet Michel, director at the Center for Data Analysis, and Mr. Alex Pollock, senior fellow at the R Street Institute, regarding the positive impacts that his legislation will have on American consumers.

Currently, Federal Reserve Districts take part in a voting rotation where only certain Districts are heard from on certain years. Williams’ bill would allow for monetary policy to be better informed by permitting every District to attend, and fully participate in, all Federal Open Market Committee (FOMC) meetings.

“Sound monetary policy is critical to a thriving economy. My bill, the FOMC Representation Improvement Act, would ensure policymakers have the necessary and accurate information through real time input from Districts with diverse sectors and regions of the United States’ economy,” said Rep. Williams. “We need to empower Federal Reserve Bank presidents from around the country who know their local economies best.”

Williams’, Michel’s and Pollock’s remarks below:

Williams: “Thank you Mr. Chairman and Ranking Member Moore. Thank all of you for holding today’s hearing.

“While I am excited about incoming Federal Reserve Board Chairman Powell, I feel that the Fed is in desperate need of reform. The time for that reform is now, and I am glad that this afternoon we will examine a series of proposals seeking to increase the effectiveness and accountability that the Fed has been lacking.

“For too long, the Fed has frankly run wild, taking actions as it sees fit, and concentrating its power inside the beltway; it is time to make a change.

“The proposals before us offer many solutions to very important problems in the Federal Reserve System. Of note, my proposal, the FOMC[1] Representation Improvement Act, which will allow the FOMC to make more informed monetary policy decisions by giving representation to all 12 district bank representatives. It, like many of the proposals before us today, is straightforward and common sense. I am optimistic that we will make headway, and I look forward to the expert testimony of all of you today - and I thank you for being here.

“So my first question is for you Dr. Michel. Thank you for being here today, and for your informative testimony on the best ways to, as you put it, ‘lessen the centralization that has developed in the Federal Reserve System.’

“Many of the proposals before us are in that spirit. My proposal, called, as I said earlier, the FOMC Representation Improvement Act, would give every district bank representative a vote on the FOMC. Do you feel that this policy will lessen the centralization in the Federal Reserve System?”

Michel: “Oh absolutely, yes”

Williams: “Dr. Michel, I would also like to ask you about the proposal to restore Class A director voting rights in the selection of district bank presidents.

“I agree with your testimony that Section 1107 of Dodd-Frank, which took voting rights away from Class A directors, served only to increase the Board’s political influence over district banks. Since the change was made, unconventional candidates, as we all know, have been chosen to succeed their conventional predecessors.

“What is the danger in Section 1107 of Dodd-Frank if Congress does not successfully restore voting rights to Class A directors in the district bank president selection process? And secondly, will this proposal successfully restore the former balance?”

Michel: “I do think 1107 actually was a solution in search of a problem. And yes, I do think restoring it is the right way to go.

“I do think that some of the - without naming names - I think that the goal should be to have people who understand their districts, [people who] understand banking in their districts, and [people who] understand monetary policy in their districts, in those districts’ bank roles.

“I think that this is probably the best way to go about restoring that - as opposed to getting some of the presidents that we’ve gotten recently for more political reasons, which is inevitably what happens when somebody in Washington picks those people.”

Williams: “Thank you.

Mr. Pollock, in your testimony you spend some time discussing the checks and balances necessary for our Constitutional government. No part of the government should be exempt from oversight, the Fed included.

“Often times, the Fed performs action outside of its defined role of monetary policy - unaccountable to anyone. This needs to change. By exercising the power of the purse and putting the non-monetary policy functions of the Fed on appropriations, Congress can begin to reign in this out of control entity.

“In your estimation, is the proposal a step far enough in the right direction to begin to make the Fed more accountable to Congress?”

Pollock: “Congressman, in my opinion it is a definite step in the right direction, but more accountability would be desirable, and this committee has - in other contexts discussed - additional substantive accountability of the Federal Reserve with respects to its monetary and financial operations. I think that’s a good idea.

“As I pointed out in my testimony in the 1970’s, the Democratic Party worked very hard to try to make the Fed more accountable to Congress they were right but we need to do more effectively.”

Williams: “Additionally, Mr. Pollock, when dealing with uncertainty of the economic and financial future, you also stated in your testimony that the promotion of intellectual diversification within the organization is important.

“One of the proposals before us provides for at least two staff members to advise each member of the Board of Governors, independent of the Chairman’s influence. It seems to me that Fed governors ought to have access to unbiased advice if they are to make sound decisions.

“Do you feel that the Board has, at times, fallen prey to group-think? Would this proposal help to promote the intellectual diversification that you feel is so important to dealing with uncertainty?”

Pollock: “I think it definitely would, and I think a problem recognized by people who are governors other than the chairman, is this fact that the staff always devotes itself to the chairman and the dominate agenda. This would be a very good proposal.”

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