Chair of U.S. House Task Force Outlines Plans in Reuters Interview
The U.S. House of Representatives, having begun preparations to strengthen oversight of the Federal Reserve (Fed), has announced plans to thoroughly investigate the Fed's monetary policy operations in upcoming hearings.
Frank Lucas, a Republican member of the House and chair of the newly established 'Monetary Policy, Treasury Market Resilience, and Economic Prosperity' task force under the House Financial Services Committee, stated this in an interview with Reuters on the 25th (local time), ahead of the first hearing scheduled for the 4th of next month (local time).
According to Representative Lucas, the agenda for the first hearing, set for 10 a.m. next month, is expected to be a 'Review of Monetary Policy and Economic Opportunity.'
The hearing is likely to focus on whether clearer principles are needed for how the Fed conducts monetary policy and whether a more rule-based approach should be strengthened in the policy decision-making process.
The core objectives assigned to the Fed by Congress are ▲maximum employment and ▲price stability. To achieve these sometimes conflicting goals, former Fed Chair Ben Bernanke introduced the '2% inflation target' 13 years ago in 2012. This remains unchanged today. The appropriate unemployment rate is considered to be 4%. In the U.S., an unemployment rate below 5% is generally regarded as 'full employment.' Full employment means there is no cyclical unemployment, only frictional and structural unemployment.
Representative Lucas asked, "Does the Fed truly have a dual mandate?" and "How does that affect its primary responsibility of price stability?"
Within the Republican Party, sentiment toward the Fed is negative. French Hill, chair of the House Financial Services Committee, recently criticized Fed Chair Jerome Powell at a congressional hearing, stating, "The Fed was too slow to recognize inflation signals during the economic recovery following the COVID-19 lockdowns in early 2020, missing the optimal timing for interest rate hikes."
Lucas also said that many colleagues, including Chair Hill, want to discuss whether price stability should take precedence over employment guarantees. Additionally, they plan to examine whether there were issues with the Fed's monetary policy, particularly regarding interest rate hikes during the COVID-19 period.
He further previewed, "In the public hearings over the coming months, we will also look into whether the Fed should increase its use of rules when making monetary policy decisions." While not advocating for completely removing the Fed's discretion, this suggests that increasing rule-based approaches could provide clearer guidance to the market on monetary policy direction.
However, Lucas acknowledged that since Republicans hold only a narrow majority in both the House and Senate, revising the Federal Reserve Act is realistically difficult. He expects that reports or proposals may be issued instead.
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