As many of you may know, I am a cosponsor of H.R. 1207, the Federal Reserve Transparency Act of 2009, also known as the “Audit the Fed” bill. I strongly support transparency of the Fed, and wanted to take a moment to tell you about this important issue.
Preserving the Federal Reserve’s independence in conducting its monetary policy is cited by many as a reason to oppose the Federal Reserve Transparency Act. But Allan Meltzer, one of the most prominent academic experts on Fed policy and history, recently declined to join others in signing a petition to preserve the central bank’s independence because, as he said, “the Fed has rarely been independent and it strikes me that being independent is very unlikely,” in the current environment.
According to a recent Wall St. Journal article, Meltzer went on to explain that history is replete of instances when the Fed bended to political pressure, keeping interest rates low in the 1930s and 40s to help finance the New Deal and World War II, for instance, and in the 1960s to finance Great Society spending, which later led to inflation.
I’m looking to explore this issue more fully in the near future – How independent is the Fed in reality? Because if history shows that the Fed has never truly been an independent entity, then there’s no independence to protect. Which then leads us to ask, ‘What is it, actually, that some people are so interested in protecting?’
Additionally, growing the power of the Federal Reserve has been the center of many proposals for financial services regulatory reform. This greatly concerns me, and I have asked President Obama for an investigation of the Federal Reserve prior to contemplating expansion of its power.
In a bipartisan letter signed by 16 of my colleagues, I wrote, “the financial services regulatory reform proposal that your Administration put forward contains within it provisions that would grant the Federal Reserve considerable new powers and oversight over a broad swath of industry in this country in order to monitor and take action to reduce “systemic risk” in our economy. Before Congress, working with the Administration, moves forward on granting the Federal Reserve any additional power, however, the actions of the Federal Reserve related to the Bank of America/Merrill Lynch deal need to be fully investigated.”
Given the events of the last few years and the resulting financial and economic turmoil in which our country now finds itself, it is appropriate that the Obama administration, Republicans and Democrats in Congress, and many other public and private entities, engage in a wide-ranging debate about what reforms are needed for our financial regulatory system. Momentum is now beginning to form to enact legislation to implement reforms. No additional powers should be contemplated for the Federal Reserve, however, until this issue is thoroughly investigated and the Federal Reserve is cleared of any wrongdoing. As mentioned above, even if it is cleared, we must ask ourselves, and we believe the American people are asking themselves, do we really want to centralize even more power in this entity?
Sincerely,
Scott Garrett
Member of Congress
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